European carmakers welcome, with caution, tariff deal with U.S.
Europe’s automakers expressed a mixed sense of relief and wariness the day after a trade agreement was reached between the United States and the European Union on Sunday. The companies welcomed a reduction in U.S. tariffs on imported cars and parts, to 15% from 25%, but warned that even a lower levy would hurt their businesses.
After an initial rally, major European carmakers’ shares turned sharply lower Monday. Volkswagen, Mercedes-Benz and BMW all fell more than 3%. Porsche and Stellantis, which owns Chrysler and Jeep as well as European brands Peugeot and Fiat, dropped more than 4%.
Automakers across Europe have booked billions of dollars in losses recently, as the effect of the 25% tariff imposed by President Donald Trump in April began to bite. The industry has also suffered from a 50% U.S. tariff on steel and aluminum imports, which the Trump administration raised from 25% in June.
A 15% tariff on cars would “cost German automotive companies billions annually,” said Hildegard Müller, president of the German Association of the Automotive Industry. She called on negotiators to “find a solution” to resolve trade disputes between the U.S. and Canada and Mexico, where many European auto parts makers had set up to serve the U.S. market, only to have those supply chains “distorted and restricted” by the escalating trade war, Müller said.
Sigrid de Vries, director general of the European Automobile Manufacturers’ Association, said that U.S. tariffs, despite the reduction from previous levels, would “continue to have a negative impact not just for industry in the EU but also in the U.S.”
Many European automakers have recently lowered or scrapped their financial forecasts on the murkier outlook for sales during Trump’s ever-shifting trade war. Recent earning reports suggested that these companies were “forced to eat at least part of” the tariffs by not passing on the full cost of the levies to customers, said Rico Luman, a senior economist at ING. A weaker dollar “also makes U.S. car imports more expensive and complicates things,” he added.
Audi, the premium brand in Volkswagen’s lineup, on Monday joined the chorus of carmakers cutting their forecasts for revenue and profit, citing the impact of U.S. tariffs and restructuring costs.
Still, having more clarity about the tariffs they face was mostly welcomed by European automakers, which pushed European officials to come to an agreement with their American counterparts as trade talks appeared at an impasse. German car companies argued against the EU introducing retaliatory measures on U.S. goods, arguing that they would be doubly penalized because they produce and export vehicles in both regions.
In its agreement with the Trump administration’s negotiators, the European Union agreed to eliminate its tariffs on cars imported from the United States, while also introducing zero tariffs on a number of machinery products, a senior EU official said.
For BMW and Mercedes, both of which produce cars in the United States for export, eliminating EU tariffs for American-built cars would be welcome. Audi, on the other hand, relies on exports from factories in Europe to serve its U.S. customers and stands to gain little from a zero-tariffs rate.
“The import tariff reduction brings much-needed relief to the German automotive industry compared to the current status quo,” Mercedes said in a statement Monday.
Volkswagen also welcomed the agreement. Last week, the company said U.S. tariffs had erased some $1.5 billion from its profit in the first half of the year. Stellantis said tariffs and factory shutdowns related to Trump’s trade policies had contributed to a steep loss in the first half of the year. Volvo Cars, which is based in Sweden but owned by China’s Geely Holding, has taken an impairment charge of more than $1 billion on tariffs and production delays.
This article originally appeared in The New York Times.