German automotive industry braces for impact of U.S. tariffs

Germany's automotive industry is bracing for the crash from U.S. tariffs – both newly implemented and upcoming.

Last week, U.S. President Donald Trump placed a 25 percent custom levy on most global imports of steel and aluminum, and he's threatening another 25 percent on other imports, such as vehicle parts and automobiles from Canada, Mexico and China.

The move is in an effort to increase domestic car production and balance trade imbalances. But for Germany, the European Union's biggest automaker, it certainly sets up some roadblocks.

For one, the U.S. is a major market for German names like Volkswagen, BMW and Mercedes-Benz, all of whom have factories in the U.S. and the three countries targeted.

Their U.S. factories will likely see disruptions in supply chains, while the tariffs could eliminate or diminish the advantage of low-wage production in Mexico and Canada, jeopardizing jobs all round.

According to the German Car Association (VDA), German automakers produce roughly 716,000 cars in Mexico, primarily for the US market.

German manufacturers contemplate response 

Munich-based BMW is concerned that its vehicles and vehicle parts entering the US market will be much more expensive, driving up prices while driving down profits. 

According to BMW's CEO Oliver Zipse, the total cost of these tariffs – along with those imposed by the European Union on cars imported from China, where BMW also manufactures cars – would amount to a loss of more than $1 billion this year.

Germany's largest carmaker, Volkswagen, is assessing how to respond to the U.S. tariffs, while its premium Audi brand, which produces the popular Q5 cars in Mexico, is considering moving all production to the U.S..

However, even then, tariffs on imported steel and aluminum could make manufacturing automobile components more expensive – before they face further levies, crossing the border to the final assembly plant.

The EU bites back

The EU is threatening to bite back with counter-tariffs on $28 billion worth of U.S. goods in two stages.

Yet that could jeopardize the chances of a tariff exemption similar to the one Trump has granted automakers in Mexico and Canada, until early April.

Germany's Kiel institute estimates that the implemented tariffs on some metals, and the one threatened on automobiles and their parts, could decrease total automobile production by 4 percent.

These tariffs come at an economically challenging time for Germany, which saw two consecutive years of recessions.