On 25 July last year, European Commission President Juncker persuaded US President Trump not to impose punitive tariffs on automobiles. Of late, there has been growing concern about US tariffs on European cars. The US Department of Trade could classify the import of cars and automotive parts as constituting a threat to America’s national security and therefore, from the US point of view, lay the foundations for introducing customs tariffs.
The German car industry has in recent years definitely performed gratifyingly. And that despite the diesel scandal and the threat of a few major German cities imposing bans on certain vehicles. However, the car industry’s fortunes have recently shown signs of braking. In 2018, orders from elsewhere in Europe sagged by over seven percent. Within Germany, things were not much better, with a decline of over four percent. Only order receipts for German cars from outside Europe continued to rise (+2.4 percent).
Given this trend, punitive customs duties in the USA would kick in at a conceivably inopportune moment. The USA is a major buyer of German cars. In 2017, almost 500,000 German automobiles were exported to the USA. In other words, car deliveries to the United States account for over 11 percent of total German car exports. Exports by German carmakers to the USA in 2018 came to a total in excess of EUR 27 billion, making the United States the most important destination. Should customs tariffs of 25 percent now be charged on this figure, this would lead to a volume of almost EUR 6.8 billion. If the customs duties were to dent US demand for car industry products imported from Germany by one quarter, or German manufacturers were not to pass on the tariffs in the form of price increases for fear of their market collapsing, then this would affect roughly 1.6 percent of the total sector sales, 2.1 percent of total German exports, and 0.2 percent of German gross domestic product.
That said, the German automobile industry is most definitely the wrong target on which to impose US customs tariffs. According to figures from the VDA, the German Automobile Industry Association, in 2018 German carmakers and their component suppliers employed about 118,000 staff in their US plants. Last year, around 750,000 vehicles were produced there, in other words far more than were exported from Germany to the United States. In fact, of the vehicles German marques produced in the USA, 56 percent were destined for export. These exports helped prevent the US trade deficit not being far higher than it would otherwise have been. The trade conflict between the USA and China has already been a clearly negative factor in this regard. While German marques in 2017 still exported some 150,000 vehicles from the USA to China, in 2018 the figure had dwindled to only 95,000.
Under normal circumstances, the German car industry would definitely be able to absorb the impact of US punitive tariffs. Yet in the light of weak demand within the country and from other European countries, a Chinese sales market that is wobbling for the first time in decades, and the high investments required in future technologies, namely electro-mobility and self-driving vehicles, the customs duties constitute a considerable additional challenge to the car industry.