Why Germany is vulnerable to US President Trump’s car tariffs

After years tangled in the "dieselgate" emissions cheating scandal, German carmakers could suffer huge losses if the United States carries out its threat to levy tariffs on European car imports.

Why Germany is vulnerable to US President Trump's car tariffs
New cars getting ready to be shipped from Bremen, northern Germany. Photo: DPA

Mammoth exports

Giants Volkswagen, BMW and Mercedes-Benz parent Daimler exported a total of 494,000 cars from Germany to the US in 2017, or 45 percent of all European auto exports to America.

At €22 billion, Germany accounted for 55 percent of the value of all European cars sold to the US that year, Pictet bank calculated in a research note.

SEE ALSO: German carmakers to hold talks with Trump over tariffs

Margins squeezed

“If tariffs were imposed that would make it much harder for the import brands to offer those high incentives” like discounts in the US market, analyst Peter Nagle of IHS Markit told AFP.

“The US brands could take advantage of those pricing mismatches.”

Meanwhile, Pictet noted that American “demand for European cars declines by around 1.5 to 3.0 percent when prices rise by one percent”.

Over the long term, the 25-percent tariffs mooted by President Donald Trump could halve the number of German cars shipped to the US as demand falls, the Munich-based Ifo institute predicted.

Ripple effect

Rating agency Moody's reckoned tariffs could prove a drag on German GDP growth of around 0.2 percentage points, while Pictet's estimate was higher, at 0.3 to 0.4 percentage points.

“Amongst the EU countries, Germany is by far most strongly affected by potential new US tariffs on car imports,” Ifo economist Gabriel Felbermayr judged.

President Trump in Washington, US, earlier this month. Photo: DPA

He suggested that the tariffs would cost the European economy nine billion euros per year, including five billion in Germany.

And the consequences for Europe's largest economy “would extend far beyond the directly affected firms,” an EY study published in December found, “given the high significance of the car industry in Germany and its weight in German-American trade relations.”

After the federal government slashed its GDP growth forecast for 2019 to 1.0 percent early this year, “the already shaky upturn would be in danger of ending,” analyst Charlotte Heck-Parsch of BayernLB bank warned.

“A key question is whether the US administration will also impose tariffs on car parts,” said Pictet analyst Nadia Gharbi. “If excluded, that would reduce the negative impact on EU countries.”

Snowball effect

German carmakers could try and cushion the effects of tariffs by producing more at their massive American factories, car industry expert Ferdinand Dudenhoeffer said.

But some brands, including Volkswagen subsidiaries Audi and Porsche, have no base in the US.

Meanwhile tariffs would be the latest broadside against an already battered industry, pounded by “dieselgate”, the US-China trade conflict, a general economic slowdown, the threat of a no-deal Brexit and the burden of massive investments in electric cars.

With Germany and other EU members' growth slowing, “a tariffs hike would come at a time when confidence is already in decline and vulnerable,” ING bank economist Raoul Leering noted.

What's more, retaliation by Brussels with tariffs on American products “could well lead to further protectionist steps by the US government… which in turn will have a negative feedback into production and employment,” he added.

By Yann Schreiber

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Norway and UK strike post-Brexit trade deal

Norway and the United Kingdom have struck an agreement on a free trade deal, the Norwegian government announced on Friday.

Norway and UK strike post-Brexit trade deal
Erna Solberg outside 10 Downing Street in 2019. (Photo by LUDOVIC MARIN / POOL / AFP)

Negotiations over the agreement have been ongoing since last summer, and the Norwegian government said that the deal is the largest free trade agreement Norway has entered into, outside of the EEA agreement. 

“The agreement entails a continuation of all previous tariff preferences for seafood and improved market access for white fish, shrimp, and several other products,” the Ministry of Trade and Industry said in a statement.  

One of the sticking points of the negotiations was Norway wanting more access to sell seafood in the UK, while the UK wanted more access to sell agricultural products like cheese.

The latter was a problem due to Norway having import protection against agricultural goods. 

“This agreement secures Norwegian jobs and value creation and marks an important step forward in our relationship with the UK after Brexit. This is a long-term agreement, which at the same time helps to accelerate the Norwegian economy,” Prime Minister Erna Solberg said in a statement.  

 The United Kingdom is Norway’s second most important single market, after the EU. In 2020 Norwegian companies exported goods worth 135 billion kroner to the UK and imported around 42 billion kroner of goods from the UK. 

Norway has given Britain 26 quotas on agricultural products, but not for mutton and beef. The agreement does not increase the UK’s cheese quotas, state broadcaster NRK have reported. 

The agreement will still need to be signed by both the Norwegian and UK parliament.