German auto giants are bracing for Trump’s tariff threats

The promise of the newly elected President of the United States, Donald Trump, a empty tariff All the goods entering the US could spell disaster for European automakers, along with Germany crisis the automotive sector is thought to be particularly vulnerable.

Speaking during the election campaign at the end of September, Trump announced his desire to transform German car giants into American car companies.

“I want German car companies to become American car companies. I want them to build their factories here,” Trump said he said Savannah, Georgia. He added that the word tariff is “one of the most beautiful words I’ve ever heard” and “music to my ears.”

Trump since then announced In one of his first acts in office, he plans to impose new tariffs on China, Canada and Mexico. The measures include an additional 10% tariff on all Chinese goods entering the US and a 25% tariff on all goods from Canada and Mexico.

Europe was not mentioned in Trump’s first tariff announcement, but EU politicians are likely to worry that it is only a matter of time before the president-elect turns his attention to the 27-nation auto sector.

For Germany, the prospect of US tariffs on European cars comes at a time when it is among the top original equipment manufacturers (OEMs). is already shaking.

Volkswagen, Mercedes-Benz Group and BMW All have issued profit warnings in recent months, citing economic weakness and sluggish demand in China. the world’s largest car market.

Ricoh Luhmann, chief sector economist for transport and logistics at Dutch bank ING, said Germany’s auto sector was significantly exposed to Trump’s tariff threats.

Germany is Europe’s largest exporter of passenger cars to the United States, exporting 23 billion euros ($24.2 billion) worth of passenger cars last year, according to data compiled by statistics agency Eurostat and ING Research. This represents 15% of Germany’s total exports to the United States

Luman said potential tariffs on German automakers would make a bad situation worse.

“It’s the heart of the manufacturing industry, isn’t it?” Luman told CNBC via video call. “So the auto industry is ultimately tied to the steel industry and the chemical industry, so it’s the whole supply chain involved.”

A German government spokesman declined to comment when contacted by CNBC.

Apart from Trump’s proposed tariffs on China, Canada and Mexico, the US president-elect has promised to apply a blanket. 10% or 20% duty on all goods coming into the country. However, it is unclear whether this promise will translate into US policy.

“We are evaluating Trump’s proposed tariffs,” a Volkswagen spokeswoman told CNBC via email.

The Wolfsburg-headquartered company said more than 90% of the vehicles it currently sells in the US market are produced in North America and meet the criteria for duty-free treatment under the US-Canada-Mexico Free Trade Agreement (USMCA). .

Nevertheless, it is he thought Trump’s proposed tariffs on Canada and Mexico would end the USMCA, he said.

Mercedes Benz, meanwhile, said it employs more than 11,000 people in the U.S., producing mostly passenger cars and vans at 12 major locations. “We look forward to a constructive dialogue with the new US administration,” the spokesperson told CNBC.

BMW, which declined to comment on the prospect of Trump’s tariff threats, has nationwide operations in about 30 locations in 12 US states, including the world’s largest BMW manufacturing facility in Spartanburg, South Carolina.

Shares of Volkswagen and BMW are down about 23% for the year, while Mercedes-Benz Group is down about 13% over the same period.