The United States plans to impose 25% tariffs on the European Union’s auto sector, reversing an agreement reached between the United States and the European Union in August.
U.S. Trade Representative Jamieson Greer told CNBC on Monday that the White House is “moving forward with this action.”
Recommended stories
list of 4 itemsend of list
Earlier this year, the U.S. Supreme Court ruled that President Donald Trump could not impose tariffs around the world through the International Emergency Economic Powers Act (IEEPA), limiting the president’s broad global tariffs.
But last year, President Trump imposed a 25% tariff on global auto imports under Section 232, citing national security risks. In August, the White House reached an agreement with the European Union to reduce these taxes to 15%.
“He has the authority to do this. What is less clear is what the problem with the United States is. Europe needed implementation of the agreement at the EU level, and there were some delays in its implementation,” Rachel Ziemba, a non-resident senior fellow at the Center for a New American Security, told Al Jazeera.
Why is President Trump targeting Europe?
President Trump has claimed that the EU is not complying with the agreement, a claim rejected by EU officials. After European countries refused to send troops to help the US Navy open the Strait of Hormuz, President Trump accused them of violating the agreement.
“Of course, this threat is a negotiation tactic. But after the IEEPA tariff decision, the US influence has decreased somewhat,” Ziemba said.
President Trump’s tariff threat will have the biggest impact on German car companies, as BMW, Mercedes and Volkswagen maintain a large presence in the United States.
This comes after Chancellor Friedrich Merz said the US was “humiliated” in negotiations with Iran and the White House announced plans on Friday to withdraw 5,000 troops from Germany.
Which car companies will be hit the hardest?
European automakers will be affected by the tariffs. According to the European Automobile Manufacturers Association (ACEA), automobile trade represents a significant part of EU-US business, accounting for 8% of total trade, with the US being the largest export destination for cars manufactured in the EU, accounting for 29% of total EU exports.
“The Trump administration continues to use coercive threats,” Georgetown University international law professor Gregory Shafer told Al Jazeera. “In this case, Germany would be the hardest hit by tariffs because of the importance of its auto industry. Europe has not yet pushed back on President Trump’s tariffs, largely due to security concerns.”
The tariffs mainly target luxury cars and high-end cars.
“Luxury cars have a bigger impact because they are mainly imported as complete products. European automakers tend to produce mid-range cars in the US given USMCA-related incentives,” Ziemba said, referring to the US-Mexico-Canada trade agreement that exempts covered goods from tariffs.
Germany’s Volkswagen is one of the automakers with a large presence in the United States. The company operates a large production facility in Chattanooga, Tennessee, where it produces the Atlas, Atlas Cross Sport, and Volkswagen ID.4. The company’s Golf models are produced in Wolfsburg, Germany.
It remains unclear how car companies will respond.
“We are reviewing the recent tariff actions and awaiting further details,” a Volkswagen spokesperson told Al Jazeera.
Mercedes-Benz also maintains manufacturing facilities in the United States, producing many SUV models at a factory in Alabama. However, some sedans, including the Mercedes-Benz S-Class, are still manufactured in Germany.
Similarly, BMW builds its X-series SUVs at a large facility in Spartanburg, South Carolina. Other models such as the 3 Series and 4 Series are primarily produced in Germany.
BMW did not respond to Al Jazeera’s request for comment.
Mercedes referred Al Jazeera to ACEA, which did not respond to a request for comment.
Stellantis also has some exposure. It produces Jeep, Ram, and Chrysler vehicles in the United States, while it also produces brands such as Fiat and Peugeot in Europe. Fiat has a limited presence in the United States and Peugeot does not.
Some brands are more exposed to tariffs than others, especially in the luxury market. Porsche and Audi (both owned by Volkswagen) don’t make cars in the United States.
The US is the largest market for EU car exports after the UK, and 25% of US global car imports come from the EU, according to ACEA, putting pressure on automakers to rethink their strategies.
Automotive News reported in March that Porsche was considering expanding production to the United States to offset the potential impact of tariffs.
Ultra-luxury brands such as Ferrari and Lamborghini face even greater exposure. Both brands produce all their vehicles in Italy.
Companies that make parts made in the U.S., such as manufacturers of clutches, exhaust gas and engine parts, will also be affected, said Kyle Peacock, who runs Peacock Tariff Consulting.
“Manufacturing factories that produce products overseas have stopped or delayed ordering materials from the United States, and are therefore reducing production in anticipation of shifts in production volumes for these products due to the impact of additional tariffs,” Peacock said.
“One of our clients makes clutches for Stellantis and Volkswagen, and those are shipped and produced in Germany and England. They’ve seen those sales slow because they don’t expect to bring those products into the United States.”
How will this impact consumers?
President Trump’s tariffs are costing American households an average of $1,000 in higher taxes per household, according to an analysis by the nonpartisan Tax Foundation. Tariffs per U.S. household are expected to drop to $700 this year after tariffs were changed following a Supreme Court ruling.
The impact on consumers is likely to be limited, as mid-range and luxury cars are mainly affected.
“So, my understanding is that this is going to be more directly passed on to consumers than some other tariff policies that have happened in the past due to the fact that individuals who purchase these vehicles are able to absorb more tariffs than lower-income consumers or consumers who were affected by previous tariffs,” Peacock said.
“My point from customers is that businesses are not going to spend these tariffs, they’re just going to pass them on directly to consumers,” he said.
Politically, tariffs weigh on consumers. A March Harris poll found that 72% of Americans said tariffs have had a negative impact on their lives, and a Pew Research Center poll in April found that 63% of Americans had no confidence in President Trump’s response to tariff policy.
“But at some point there will be a tipping point where Europe retaliates by targeting U.S. exports from key battleground states in an effort to hurt President Trump,” Georgetown University’s Schaefer said.
Peacock’s consulting said European automakers like Volkswagen are more hesitant to do business with U.S. automakers, many of which are located in battleground states such as Virginia and New Jersey.
The White House did not respond to Al Jazeera’s request for comment.
