How Trump tariffs could upend car markets in Europe, the US and China | Automotive industry

The internal combustion engine appears to hold a special place in Donald Trump’s psyche. During his inauguration speech last week, he made a “sacred pledge” to raise US car production to “a rate that nobody could have dreamt possible just a few years ago”.

Car making and the oil industry – not AI, computer chips, or even cryptocurrencies – were the only two industries the new US president highlighted as he promised to make America a “manufacturing nation once again”.

For carmakers, Trump has mentioned some key policies: removing subsidies for US electric car production, cutting back emissions regulations, and imposing of tariffs on all imports.

Although he has yet to give details on much of his plans, the potential effects of Trump’s policies – if they are carried out – threaten to change the path of much of the global car industry.

Europe braces for impact

Tariffs are bad news whichever way you slice it for Europe’s carmakers. “If you don’t make your product in America, which is your prerogative, then very simply, you will have to pay a tariff,” he said via video link to executives gathered at the World Economic Forum in Davos, Switzerland last week.

Germany’s Volkswagen, Sweden’s Volvo and the US-European conglomerate Stellantis are “most exposed” to potential new tariffs because of their greater reliance on US sales and higher proportion of imports to the US, according to analysts led by Ruosha Li at Moody’s, a credit rating agency.

All three rely heavily on imports from Europe to the US, while Volkswagen and Stellantis’s European brands also relied heavily on Mexican factories under expansive trade deals. Trump repeated his threat of 25% tariffs on Mexico and Canada on his first day in office this week.

About half of European carmakers’ US sales are imported, Moody’s said. After Trump’s return to the White House, Volkswagen said that tariffs would have a “harmful economic impact” on American consumers, as well as the international automotive industry.

The UK’s car industry is likely to be caught up in tariffs, if they are imposed – although some in the business are holding on to hope that it could realise a genuine benefit from Brexit if the US limits its tariffs to the EU. About 10% of UK car exports go to the US, although the majority go to the EU, according to the Society of Motor Manufacturers and Traders, a lobby group.

One small silver lining for the UK may be that a large number of those exports from companies such as the Jaguar and Land Rover owner JLR, the BMW-owned Rolls-Royce or the Volkswagen-owned Bentley, are classed as luxury vehicles, with prices that can start at £100,000 and rise to multiples of that. Those companies should be able to pass on the cost of tariffs to wealthier customers without denting sales.

A double-edged sword for the US

Trump’s electric vehicle policies are aimed at “saving our auto industry”, but the long-term effect of his policies is not necessarily straightforward for the home team.

America’s car champions are the “big three” carmakers whose history centred on Detroit, Michigan: General Motors, Ford, and the American brands now owned by Stellantis. Trump hopes to preserve US factories making gas (AKA petrol) cars. Those factories provide thousands of jobs in concentrated areas, making them highly visible and politically potent. Stellantis duly revived plans for $5bn (£4bn) in US investments just days after John Elkann, the billionaire who inherited control of the company, met Trump.

Detroit’s carmakers will probably enjoy the removal of limits on sales of highly profitable and much more polluting gas-powered SUVs and pickup trucks. That will probably mean slower US electric sales growth.

“We will see less enthusiasm from consumers for sure,” says Felipe Muñoz, an analyst at Jato, an automotive data company. He said buyers are still balking at high upfront prices for EVs relative to fossil fuel cars.

However, Detroit’s carmakers have already made investments in electric technology. General Motors and Ford might miss out on subsidies, scrapped by Trump, of as much as $3bn and $1bn respectively, according to previous estimates by Evercore ISI, an investment bank.

Rico Luman, an economist at ING, an investment bank, says the subsidy cuts would hit American carmakers struggling to shift to electric. “We have seen already postponement of scaling programmes”, he says.

Tesla, alone

Despite its all-electric product lineup, Tesla’s share price has surged by nearly two-thirds since the presidential election. Analysts have predicted a wave of deregulation of autonomous car technology that could open up new revenue streams for the EV leader. That might go some way to explaining the alliance of clean transport pioneer, Tesla boss, Elon Musk with a US president who has just ripped up subsidies for zero-emission cars.

Tesla has factories in the US, Berlin and Shanghai, in a strategy that appears canny as the US, Europe and China look to protect their industries (although Tesla is also challenging separate EU tariffs on its Chinese imports). Tariffs could therefore block imports of potential electric competitors built elsewhere. At the same time, US competitors are likely to slow their shift to electric, leaving America’s EV market clear for Tesla.

“Tesla has a beneficial position because the gap between Tesla and the others will remain,” Luman said. “It’s way ahead in terms of volumes.”

China unaffected

Trump sees China as the greatest economic threat to the US, but his promise of steep 25% tariffs on all goods will do little to affect carmakers such as BYD and the state-owned SAIC even as they threaten to take over industry in its electric age. Trump’s predecessor, Joe Biden, had already imposed 100% tariffs on Chinese electric cars.

“For the Chinese, nothing is going to change,” Muñoz said. “They are not counting on the US for their global expansion any more.”