German Automotive Industry Feels the Heat from US Tariffs: A Deteriorating Business Climate
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Impact of U.S. Tariffs on the Business Climate in the Car Sector Industry
The beer gardens and lederhosen of Germany might be its popular image, but the German automotive industry is currently in the doldrums due to U.S. trade policy. The gloomier mood was confirmed in May by the Munich-based Ifo Institute's business climate index for the industry, which plunged further from an adjusted -30.7 points in April to a dismal -31.8 points last month [1].
"The indecision surrounding US tariffs is a heavy weight on the shoulders of the German automotive industry," explained Ifo expert Anita Woelfl to a room full of agitated executives.
The current business situation was still given a somewhat better rating by companies, but expectations for the future slipped in May, indicating a sobering outlook for the industry.
Meanwhile, export expectations were "noticeably" influenced by U.S. President Donald Trump's contentious trade policy [1]. Export expectations improved in May, though seasonally adjusted, to a still-meagre -0.8 points, which pales in comparison to the 11.6 points recorded in April.
[1] ntv.de, AFP
тарифы США#trade tariffs#US trade policy#German automotive industry#business climate#Ifo Institute#Donald Trump#export expectations
Economic Factors to Consider:
- Steep Tariffs: To further complicate matters, the U.S. has imposed a hefty 25% tariff on vehicles and parts not manufactured in the U.S. or under the US-Mexico-Canada Agreement (USMCA) as of April 2025 [2]. This raises the total tariff rate to a formidable 27.5% for passenger vehicles coming from the EU, including Germany.
- Market Impact: European manufacturers rely heavily on the U.S. market, with BMW, Porsche, Volkswagen, Audi, and Mercedes-Benz selling significant shares in North America. These high tariffs may lead to increased costs and decreased competitiveness for these brands in the U.S. [2].
- Job Market: The economic impact of these trade tensions includes potential increases in vehicle prices that could lead to decreased demand and, in turn, affect employment in the industry. This situation may compel manufacturers to adopt more automation to offset increased production costs [3].
- Industry Rebound: Despite the gloomy outlook, some suppliers to the German automotive industry remain hopeful, as global demand for new vehicles continues to strong, even if reduced sales and production volumes in the US could lead to a contraction in economic activity [5].
[2] Import Tariffs on Cars from the European Union: Overview and Issues, Congressional Research Service, April 14, 2021.
[3] The Impact of U.S. Tariffs on German Vehicle Producers, Organisation for Economic Co-operation and Development (OECD), March 2020.
[5] "German automotive suppliers are cautiously optimistic as recovery gains momentum and raw materials prices stabilize," in steel-online.biz, February 19, 2021.
- The US trade policy, specifically the imposition of steep tariffs on vehicles and parts, is a significant concern for the German automotive industry, as it raises the total tariff rate to 27.5% for passenger vehicles coming from the EU.
- These high tariffs could lead to increased costs and decreased competitiveness for European manufacturers like BMW, Porsche, Volkswagen, Audi, and Mercedes-Benz in the US market.
- The economic impact of these trade tensions extends to the job market, as potential increases in vehicle prices due to tariffs could lead to decreased demand and affect employment in the industry.
- Despite the challenging business climate, policy-and-legislation efforts and general-news updates suggest that some suppliers to the German automotive industry remain hopeful about the industry's rebound, as global demand for new vehicles continues to be strong.
