German auto manufacturers brace for impact from Trump's tariffs

This week, U.S. President Donald Trump introduced new 25 percent tariffs on all imported vehicles and some auto parts. This will have a huge impact on Germany, the main European exporter of vehicles.

Trump believes the tariffs will redress what he sees as an imbalance in U.S. trade policy. He has referred to the date as "liberation day" as he aims to get manufacturers to build in America.

"The people that are going to make money are people that manufacture cars in the United States," Trump said. "Outside of the United States, that's going to be up to them. I don't care too much about that."

Germany is set to be walloped by these measures. Speaking at the Hannover trade fair – where Canada, another country in the crosshairs of Trump's tariffs, is the partner nation – Chancellor Olaf Scholz had a message of solidarity for Canadian PM Mark Carney.

"We stand with Canada," Scholz said. "It is an independent, sovereign country and we are all working together to ensure that the misguided path of protectionism does not destroy the growth opportunities of the entire world."

In 2024, the United States imported $220 billion worth of passenger cars, $25 billion of which came from Germany. The big names in German auto manufacturing are facing an uncertain future in one of their biggest markets.

Mercedes Benz is looking at taking a financial hit of around $1.7 billion for 2025, due to around two-thirds of its U.S. exports being eligible for tariffs.

Porsche looks set to make job cuts, with 10 percent of staff facing redundancy. The company already announced a 20 percent drop in operating profit for 2024, down over $6 billion for the year.

Volkswagen is another big name that has struggled recently. Last year, the company had to issue two profit warnings to shareholders and announced that the clock was ticking to save one of the world's most famous auto firms. These tariffs will hit 80 percent of its U.S. sales.

Countermeasures

European Central Bank boss Christine Lagarde has become the latest European leader to say that Europe must defend its interests and respond with its own measures. But what options are really available, and how effective can they be?

Michael Schumann of the German Federal Association for Economic Development and Foreign Trade, says the Europeans can use this as an opportunity to take the heat out of the looming trade war.

"It's good to sit down and talk," he said. "Of course, it's good to have cards and to build up a position from where you can negotiate – if you negotiate without options then it's no negotiation. Europe has options, the EU has options. But we should tone down the rhetoric, and start negotiating."

The auto industry generates 10 percent of Germany's GDP and 20 percent of its industrial revenue. Directly and indirectly, it employs over a million people. Now, German automakers are facing job cuts and major revenue hits – because of the trade policy of one of the country's biggest allies.