The transatlantic automotive trade is a cornerstone of the EU’s automotive success, generating €56 billion in exports to the United States in 2023—20% of the EU’s total automotive export value. This substantial figure makes the European automotive industry precariously susceptible to potential tariff threats from a second Trump administration, which could disrupt the industry that supports 13.8 million jobs across Europe.
Under the banner of protectionism, a second Trump term is likely to introduce 25% tariffs on EU motor vehicle imports, drastically rising from the current 2.5%. Such a shift would inflate European car prices in the US, diminishing their competitive edge against both domestic and non-EU alternatives, thereby precipitating a decline in EU automotive exports to this vital market.
Utilising the GTAP model, a premier tool for trade analysis, we’ve examined the potential ramifications of imposing these hefty tariffs on the EU automotive sector. Our findings reveal that German and Italian exports are particularly at risk, potentially plummeting by 7.1% and 6.6% respectively, while Spanish and French exports might see smaller declines of 2.4% and 2.3%. This disparity showcases the varied reliance on US markets among European manufacturers.
While attempting to shift exports to alternate regions, European manufacturers would face immense hurdles. Different consumer preferences and regulatory environments, coupled with fierce competition from industries in China and South Korea, will likely prevent a swift recovery of lost US sales.
The potential fallout of these export losses casts a daunting shadow over the EU automotive industry. Exports to the US account for about 15% of total European automotive output; thus, our predictions indicate a decline in production overall, with Germany and Italy facing a gross value added fall of 5.3% and 4.7%, respectively. This jeopardises not only an industry crucial to job creation but also one that contributes significantly to the EU’s GDP.
Though one might assume US automotive firms would benefit under this scenario, the reality is that global supply chains mean increased tariffs would inflate input costs, negating some competitive advantages. Additionally, retaliatory tariffs from the EU would dampen US exports, leading to an inevitable ripple effect across the industry.
A mirror scenario with the EU imposing a 25% tariff on US motor vehicle imports would yield a 3.1% decline in US automotive exports. However, the overall robust nature of the US automotive sector means it could weather these retaliatory measures, as vehicles sent to the EU represent merely 2% of total US output—showcasing a clear trade imbalancing.
This tumultuous interdependence reveals the precarious situation facing the EU automotive industry, which stands on the knife-edge of this trade battle. The ripple effects not only threaten the livelihood of 13.8 million directly linked jobs but extend to countless others through supply chains that underpin the sector. Clarity on future trade policies is critical as manufacturers brace for unpredictable shifts on the horizon.
In 2023, the EU exported €56 billion worth of automotive products to the US, representing 20% of the bloc’s total automotive exports. A potential increase in tariffs to 25% under a second Trump administration could severely impact exports, particularly from Germany and Italy. The trade landscape faces instability as retaliatory tariffs could also affect US exports, illuminating the interconnected nature of the global automotive market.
In conclusion, the looming spectre of increased tariffs under a potential second Trump administration poses a formidable threat to the EU automotive industry. Estimates suggest significant declines in exports, particularly from Germany and Italy, highlighting the uneven impact across European manufacturers. The resulting economic repercussions could ripple through the broader European economy, threatening millions of jobs tied to this vital sector and ultimately contributing to a shift in industry dynamics. Understanding the full implications of this scenario is crucial, as trade policies play a pivotal role in shaping the global automotive landscape.
Original Source: www.oxfordeconomics.com
