U.S./EU Tariff Deal Gets Mixed Reception

U.S./EU Tariff Deal Gets Mixed Reception.

“EU’s lopsided Trump trade deal will be short-lived”

The German auto industry association said agreement between the U.S. and the European Union on a new tariff regime avoided a trade war but will be a financial burden on its carmakers.

The German Association of the Automotive Industry (VDA)   said in a statement it was a positive that the agreement averted a transatlantic trade war.

But the VDA also said the U.S. tariff of 15% on automotive products will cost German automotive companies billions annually. 

Meanwhile, Volkswagen,  BMW  and Mercedes stock prices fell more than 1% Monday after news the U.S. and the EU agreed new tariffs on auto imports. Rather than a negative opinion on the deal, the stock price falls reflected their strong reaction last week on expectations a deal would be agreed.

The new tariffs are a substantial improvement on the recent increase to 27.5% charged on European auto imports into the U.S. but still four times the previous charge of 2.5%. 

Last week,  the STOXX Europe 600 Automobiles & Parts Index, which tracks European automakers and suppliers, jumped 3.4% on news Japan had agreed a 15% tariff on its auto exports to the U.S. That rally was led by Volkswagen, BMW and Mercedes. On Monday, the index slid 0.2%. Experts had predicted the Japan deal was likely to be the same as that offered to Europe.

A Reuters Breakingviews column on the agreement was headlined “EU’s lopsided Trump trade deal will be short-lived”. 

The column, by Pierre Briancon, said the deal would have at least removed some uncertainty.

Red line trigger
“Nevertheless, It must be compared not to Trump’s threats, but to the 1.47% rate previously applied to European goods crossing the Atlantic. Only two months ago, several EU governments were warning that a 10% across-the-board charge, similar to what the UK had obtained, would be a red line that should trigger some form of response,” Briancon said.

“In addition to the added trade friction, the EU has also promised to import more energy – spending $250 billion a year on American oil and gas – and could invest some $600 billion stateside. That, at least, is Trump’s interpretation of the deal. It’s unclear whether these figures represent incremental amounts, or what time frame the president had in mind. Fuzzy as they are, these EU pledges at least do not look very binding,” according to Briancon.

The deal, announced by President Donald Trump and European Commission President Ursula von der Leyen in Turnberry, Scotland, didn’t reveal many details. 

U.S. exports boost Germans
German automakers had been hoping for additional concessions to increase their production in the U.S. and incentivize investment. Exports from the U.S. of German production would also earn concessions. Volkswagen has talked about adding Audi output in the U.S. 

BMW is the biggest German auto exporter from the U.S., shipping nearly 225,000 vehicles with a value exceeding $10 billion in 2024. Mercedes is another significant exporter. Volkswagen has a U.S. factory but doesn’t export much. Another idea would mean for every German export from the U.S., one import would be allowed free of duty, or at a reduced rate.