Trump's European car tariff threat could crunch German automakers

Nathan Bomey | USA TODAY

German automakers are at risk of huge losses as President Donald Trump threatens to impose tariffs in an international dispute over what he believes are unfair trade policies.

Trump on Friday signaled that without concessions, he would penalize Europe-made vehicles sold to American customers.

"Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S.," Trump tweeted. "Build them here!"

The latest comment comes after Trump in March suggested "we can put a tax of 25 percent on their cars, and believe me they won't be doing it for very long."

The U.S. imported about 1.26 million vehicles annually from Europe in 2017, according to LMC Automotive. About half come from Germany, according to Evercore ISI. Most are luxury vehicles.

Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here! — Donald J. Trump (@realDonaldTrump) June 22, 2018

Right now, Europe tacks on a 10 percent tariff on cars from the U.S., while the U.S. imposes a 2.5 percent tariff on European-made cars and 25 percent on light trucks.

German automakers are reportedly poised to support ending all car tariffs between Europe and the U.S. To be sure, BMW, Mercedes and Volkswagen all operate U.S. plants. But most of their U.S.-sold vehicles still come from Europe.

More: Volvo's CEO hopes all vehicle tariffs are wiped out, a possible win for Trump

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More: European Union tariffs on Harleys, peanut butter and other US goods begins Friday

Senators rip tariffs imposed for national security Lawmakers from both parties criticized Trump administration tariffs on imported steel and aluminum products imposed in the name of national security Wednesday during a trade hearing featuring Commerce Secretary Wilbur Ross. (June 20)

The Washington, D.C.-based Alliance of Automobile Manufacturers, which represents automakers on policy issues, said Friday that it opposes increased tariffs.

“While we understand that the Administration is working to achieve a level playing field, tariffs are not the right approach," the Alliance said in a statement. "Tariffs raise vehicle prices for our customers, limit consumer choice and invite retaliatory action by our trading partners. Automakers support reducing trade barriers across the board and achieving fairness through facilitating rather than inhibiting trade.”

An increase in tariffs on European cars would be "terrible" for German manufacturers in particular, Evercore ISI auto analyst Arndt Ellinghorst wrote Friday.

Trump's tariffs would cost German automakers more than $5.2 billion annually, Ellinghorst estimated.

"Not a single car could be shipped with a profit to the U.S." from Germany, Ellinghorst said.

Others would be affected, too, including Italian-American automaker Fiat Chrysler, which shipped about 154,000 vehicles from Europe to the U.S. in 2017, according to LMC.

If Trump follows through, German automakers would likely respond by selling fewer vehicles in the U.S. or increase prices sharply, Ellinghorst predicted.

Of their U.S. sales, BMW imported 70.8 percent from Europe, Mercedes maker Daimler 51.9 percent and Volkswagen 45 percent, according to LMC.

About 89.4 percent of Swedish brand Volvo's U.S. sales came from European plants in 2017. But that's poised to drop soon after Volvo opens its first U.S. plant this fall in South Carolina.

Volvo CEO Håkan Samuelsson told USA TODAY in an interview Wednesday that he supports a policy of no tariffs on vehicles between the U.S. and Europe or China.

Elimination of auto tariffs would be "good for the industry and good for the U.S.," Samuelsson said.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.