Published on: March 27, 2025 / Updated on: March 27, 2025 – Author: Konrad Wolfenstein
On March 26, 2025, US President Donald Trump announced tariffs of 25 percent on all car imports from abroad – Image: Xpert.Digital
US tariffs and their consequences: A turning point for Europe's automotive industry
The impact of the 25% US tariffs on the automotive industry: causes, solutions and countermeasures
On March 26, 2025, US President Donald Trump announced tariffs of 25 percent on all imported cars, scheduled to take effect on April 2. This measure represents a further escalation in the intensifying trade conflict between the US and the European Union, with the German automotive industry being particularly hard hit.
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The failure of politics, businesses, and consultants
Political misjudgments and dependencies
The close ties between the German automotive industry and politics have led to a problematic dependency. This was already evident in 2013 when the then VDA President, Matthias Wissmann, wrote to the Chancellor, urging her to oppose a “very ambitious and largely unbalanced” CO2 regulation in Brussels – citing the “jobs of our car manufacturers in Germany.” Politicians failed to develop timely alternatives to the US market and pursued an overly one-sided focus on the interests of the automotive industry.
Lack of risk diversification among car manufacturers
The German automotive industry has focused too heavily on exports and disproportionately weighted the US market. No other country imported as many new passenger cars from Germany as the USA: with a 13.1 percent share of exports, it led the way, followed by Great Britain and France. This high export dependency makes German manufacturers particularly vulnerable to protectionist measures.
The failure of management consultants and analysts
Management consultants have not sufficiently incorporated geopolitical risks and the vulnerability of global supply chains into their analyses. Instead, they have often recommended short-term profit optimization without adequately assessing long-term risks. The blockage of the Suez Canal by the container ship "Ever Given" in 2021 should have served as a clear warning signal regarding the vulnerability of global supply chains. Nevertheless, no adequate risk mitigation strategies have been developed.
In the consulting industry, cases of liability for negligent advice are rare, although they do occur. A well-known case is the lawsuit filed by the financial investor Kingsbridge Capital against the US management consultancy Alix Partners for €30 million in damages due to negligent advice in connection with the Märklin insolvency.
A profound disruption to established trade patterns: 25% tariffs on car imports into the USA – Image: Xpert.Digital
25% US tariffs could have a significant impact on consumer prices. For example, the average price of a compact car, currently around $25,000, would increase by $6,250. A mid-size car, estimated at $35,000, would become $8,750 more expensive. SUVs could see a price increase of $11,250, based on an average price of $45,000. Pickup trucks, currently priced around $50,000, would see a price increase of $12,500. Electric vehicles, currently averaging around $55,000, could become $13,750 more expensive. A gasoline-powered crossover SUV, currently priced around $40,000, could see a price increase of $3,500. Another pickup truck with a similar base price could see price increases of $8,000. Full-size SUVs, which average $60,000, could become $9,000 more expensive, while subcompact cars with a starting price of $25,000 would see an increase of $6,200. Electric vehicles could even experience price hikes of up to $12,000. These estimated price increases are for illustrative purposes only and may vary depending on the model, place of manufacture, and other factors.
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Strategies for avoiding and circumventing punitive tariffs
Circumvention and production splitting
One strategy for circumventing tariffs is the so-called "circumvention," or circumvention by disguising origin. This involves processing or assembling goods in such a way that they fall under more favorable customs conditions. This can be achieved through various methods:
- False declarations of origin, where the origin in an intermediate country is concealed
- Incorrect classification of goods, resulting in a lower customs duty being payable
- Delivery of vehicles in individual parts and assembly in the USA
However, these practices are legally questionable and can lead to severe penalties if discovered. The EU conducts regular checks to prevent such circumvention, and the customs authorities of the Member States are responsible for collecting customs duties and must take all necessary measures to protect the EU's financial interests.
Instead of legally questionable practices such as production splitting, there are several legal ways for companies to optimize their customs costs and make the flow of goods more efficient:
- Use of special customs procedures:
- Inward processing: Non-EU goods can be imported duty-free, processed and then re-exported.
- Outward processing: EU goods can be temporarily exported and, after processing, re-imported with partial or full customs exemption.
- Customs warehouse: Allows the storage of non-EU goods without immediate customs duties.
- Requesting binding tariff information: This provides legal certainty regarding the correct classification of goods and the applicable customs duties.
- Use of customs simplifications: For example, simplified registration procedures or authorization as an Authorised Economic Operator (AEO).
- Correct application of preferential trade agreements: Use of tariff reductions when trading with countries with which the EU has free trade agreements.
- Supply chain optimization: Adaptation of production sites and delivery routes, taking customs aspects into account.
- Use of the Union transit procedure: Enables the transport of non-EU goods within the EU without immediate customs duties.
- Use of the returned goods regulation: For goods exported from the EU and returned within three years.
These legal methods allow companies to optimize their customs costs while complying with all EU regulations.
Nearshoring as a strategic alternative
Nearshoring offers a legal and sustainable alternative to traditional offshoring. Unlike offshoring (relocation to distant countries), nearshoring involves outsourcing business services to companies located abroad but in geographical proximity. This enables:
- Similar time zones to facilitate communication
- Faster responses and better coordination
- Production near the target market
- Cost reduction through shorter transport routes
The introduction of extensive tariffs on the import of goods into the USA has a significant impact on Germany as an export nation, but nearshoring can help to mitigate these effects.
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Reshoring: Relocating production back to Germany
An even more direct response to trade conflicts is reshoring – the relocation of production back to the home country. Instead of producing in low-wage countries, some companies are choosing to bring their production back to Germany. Reasons for this include:
- Rising wages in traditionally “low-wage countries”
- Advances in digitalization and automation that reduce production costs in Germany
- Elimination of the additional costs and risks caused by offshoring
Buffer storage to minimize risk
Buffer stocks can play an important role in safeguarding against supply chain disruptions:
- Local stockpiling of goods essential for production
- Avoiding production downtimes, which can cause revenue losses in the seven figures per day
- These warehouses do not necessarily have to be located in logistically optimal locations
Such buffer stocks are particularly useful in complex industries such as the automotive sector, as just-in-time production is especially susceptible to disruptions in these sectors.
Further adaptation strategies
In addition to these main strategies, there are other ways in which companies can react to the changing trade policy:
- Direct investments in the USA to build up production capacities there
- Diversification of sales markets to reduce dependence on the US market
- Adapting the product range to the specific requirements of the US market
- Strategic alliances with US companies
International countermeasures and the trade conflict
The reaction of the European Union
The EU has already announced decisive action in response to US tariffs. As a first step, the European Commission plans to reinstate EU-imposed tariffs on imports of US products such as bourbon whiskey, jeans, motorcycles, boats, and peanut butter, starting in April. According to the EU Commission, the new 25 percent US tariffs will affect EU exports worth a total of €26 billion, representing approximately five percent of the EU's total goods exports to the US.
The planned EU countermeasures are intended to affect US goods exports of the same value:
- The first step will involve goods worth approximately 8 billion euros
- The second step then involves goods worth approximately 18 billion euros
However, EU Commission President Ursula von der Leyen emphasizes the importance of negotiation: “It is in no one’s interest to break the bonds of the global economy.”.
Global reactions and impacts
Not only the EU, but also other affected countries have announced countermeasures:
- China wants to involve the WTO (World Trade Organization)
- Canada, in turn, has announced punitive tariffs
Economist Monika Schnitzer goes so far as to describe Trump's tariff policy as an "act of terrorism," as it jeopardizes the positive effects of globalization. The chairman of the German Association of the Automotive Industry (VDA) views this back-and-forth with great concern and emphasizes that the automotive industry is a "prime example of the positive effects of globalization.".
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US tariffs: How the German automotive industry must adapt
Current developments in US trade policy pose a serious challenge to the global economy and especially to the German automotive industry. The 25 percent tariffs on all car imports will have a significant impact on the competitiveness of German vehicles in the US market.
In the past, policymakers, businesses, and consultants underestimated the risks of excessive export dependence and geopolitical shifts. Strategic adjustments are now needed to address these challenges.
Strategies such as nearshoring, reshoring, buffer stocks, and legally permissible forms of production adjustment offer ways to mitigate the impact of punitive tariffs. At the same time, the international community must work together to de-escalate the trade conflict in order to avoid long-term damage to the global economy.
The automotive industry is facing a profound structural transformation, which is being further accelerated by current trade policy disruptions. Companies that respond flexibly and innovatively to these challenges will emerge stronger from this crisis.
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