David Bailey / Apr 2025
Image: Shutterstock
It was more bad news for the European auto last week when Trump announced 25% tariffs on all car imports to the US. The European auto industry was already being squeezed by falling sales in China, stagnant demand in Europe, and slow EV take-up, with a raft of profits warnings by big auto makers in recent months.
It's nothing short of a perfect storm for the industry; ‘it’s carmageddon all over again’ as one auto supplier said to me this week. And even after Trump’s latest, dizzying U-turn on broader tariffs, the auto tariffs remain firmly in place, for now at least.
Over 20% of EU vehicle exports go to the US, almost 760,000 new vehicles, with a value of €38.9 billion in 2024. Two-thirds of that comes from Germany, with around 25% of German auto exports to the US shipped by German firms to their own US subsidiaries. Italy is also badly affected - think of the Jeep Renegade and Fiat 500 in the mass market and Ferrari and Lamborghini in the exotic supercar market.
Meanwhile, in the UK cars are the UK's number one goods export to the US, worth around £8.3bn a year. Firms like JLR, Rolls Royce, Bentley, Aston Martin, Lotus, MINI, McLaren and Morgan will be most affected. There will be a particular impact on the West Midlands, which is the number one exporting region to the US. JLR has just paused shipping cars to the US as it digests the tariff shock. Lotus has already announced further job cuts, in part caused by Trump’s tariffs.
Volkswagen (the second biggest global auto manufacturer after Toyota) is also figuring out what to do. Like rivals Mercedes and BMW, it faces hiking prices in the US, squeezing dealer margins, shifting more production to its US plants (as Trump wants), and cutting production in Europe.
VW has for a while seen rapid growth in the US, investing heavily there, and 7% of its global workforce is employed in the US at sites such as a big factory in Chattanooga, Tennessee, where it assembles the Atlas and Atlas Cross Sport SUVs as well as the ID. 4 EV.
Despite the Chatanooga plant, VW is particularly exposed to tariffs as most of its US sold cars are made in in Germany and Mexico, in the latter case including its best-selling Audi Q5 SUV. VW may have to look at producing Audis in the US if tariffs remain in place.
Trump’s tariffs are leading to a rethink in the EU about China, especially on automotive. Last October, the EU imposed tariffs on Chinese EVS of up to 35% after an investigation found that Beijing unfairly subsidises EV production. Those tariffs kicked in as the trade deficit with China hit over €300bn in 2024.
More than 50,000 BEVs were shipped from China to the EU in January and February of 2025. European auto makers like Volkswagen and Stellantis simply can’t compete with Chinese made EVs. The latter have a 30-40% cost advantage based on years of experience, economies of scale and state support. The tariffs were designed to buy 5 years’ time for EU producers to catch up.
But Trump has forced a drastic rethink. The European Union and China have started discussions on replacing tariffs with minimum prices on Chinese-manufactured EVs. The idea is to stabilise the market, give EU auto makers some breathing space, and keep open access for EU premium and luxury brands to the big Chinese market.
At the same time, there are concerns that the move could increase EV costs for consumers, slowing EV take up. This highlights a fundamental dilemma for policy makers in Europe. If policy makers want rapid EV take up to help in the Net Zero challenge then cheap Chinese EVs help that happen. But if policy makers want to support the biggest industrial sector in the European Union, minimum prices might help.
Given how far ahead China is on battery technology and costs, the EU might need a rethink on trying to build a European battery industry to decouple form China. The collapse of Northvolt, the darling of the European battery industry, highlighted in stark terms how difficult growing a domestic battery champion really is given the scale of capital needed. The firm had attracted some €15bn in investment but still went bust. Inviting more Chinese battery makers and EV makers into Europe (like BYD in Hungary) might be a better way to go than trying to reinvent battery making in Europe.
Ironically Trump’s auto tariffs look set to isolate the US auto industry and foster closer EU-China ties on EVs and batteries in what is potentially a classic case of the ‘law of unintended consequences’. That isn’t likely to please President Trump very much.
