Impact of US-EU Trade Tensions on the German Auto Industry in 2025

The German automotive industry, a cornerstone of Europe’s export-driven economy, faced significant challenges in 2025 due to escalated US tariffs under President Donald Trump’s second administration. These measures, part of broader US-EU trade frictions, targeted key sectors like automobiles, leading to sharp export declines, profit losses, and strategic shifts. While a partial detente in August capped some tariffs, the “new normal” of higher barriers has reshaped the industry.

German Exports Fall More Than Expected as US Shipments Sink …

Tariff Changes and Timeline

• Initial Escalation (April 2025): Tariffs on EU cars jumped from 2.5% to 27.5% (adding a 25% Section 232 duty), and for pick-ups/light commercial vehicles from 25% to 50%. A 10% reciprocal tariff applied to all EU imports, with a planned 20% hike postponed. Additional 25% duties on Mexican-sourced products affected German OEMs with operations there.
• August Agreement: A ramoc agreement between Trump and EU Commission President Ursula von der Leyen reduced the baseline tariff on European cars to 15%, providing some relief but maintaining high rates on steel/aluminum (up to 50%) used in auto production.

These changes disrupted supply chains, increased costs, and deterred investments, with US withdrawal from USMCA and potential WTO exit adding uncertainty.

Quantitative Impacts

• Export Declines: German car exports to the US fell by nearly 14-15% in the first nine months of 2025, the steepest drop among German industries. Overall exports to the US dropped 7.8% year-on-year, reversing pre-2025 growth trends of ~5% annually.
• Financial Hit: Manufacturers risked losing up to 25% of operating profits. Price hikes of up to $6,400 per vehicle affected ~500,000 annual imports from Europe.
• Sector-Wide Effects: Related industries like engineering and chemicals saw 9.5% export drops to the US, exacerbated by steel/aluminum tariffs and energy costs. 86% of medium-sized auto firms anticipated impacts, with 54% citing indirect supply chain disruptions.

Company Responses and Strategies

German automakers adapted through diversification and localization:

• Production Shifts: Companies with US facilities (e.g., BMW, Mercedes) gained advantages via local value creation and benefited from US tax cuts. Audi halted all US vehicle imports.
• Supply Chain Adjustments: Emphasis on transparency, risk mitigation, and diversification to non-US markets. Luxury brands passed costs to consumers via price increases.
• Product Focus: Accelerated shift to affordable EVs, using customs procedures/free zones to minimize duties.

Broader Implications

• Economic Risks: The tariffs threaten Germany’s export model, potentially causing market distortions in Europe as diverted US-bound products flood the EU. Job losses and reduced investments loom, with limited US capacity hindering quick pivots.
• Political and Long-Term Outlook: A German foreign office study warns of no return to pre-Trump tariff levels, urging EU diversification via deals like Mercosur (despite French opposition) and markets in India/Indonesia. Expert Samina Sultan noted a “new normal” for exporters, with recovery unlikely.
• Global Context: Combined with US-China tensions, this has accelerated deglobalization in autos, pushing Germany toward resilience but risking higher costs and slower innovation.

Overall, 2025 marked a pivotal year for German autos, with tariffs amplifying existing pressures like EV transitions and energy costs, potentially reshaping the industry’s global footprint.