The promise by newly elected President Donald Trump to introduce a blanket tariff on all goods entering the U.S. could harm European automakers, as Germany's automotive sector, which has already been hit by the crisis, is considered particularly vulnerable.
Speaking during his campaign in late September, Trump expressed his desire to turn Germany’s automotive giants into American companies.
"I want German automakers to be American. I want them to build their plants here," Trump said in Savannah, Georgia. He added that the word "tariff" was "one of the most beautiful words I’ve ever heard" and "music to my ears."
Since then, Trump has announced plans to impose new tariffs on China, Canada, and Mexico as one of his first acts in office. The measures include an additional 10% tariff on all Chinese goods entering the U.S., and a 25% tariff on all goods entering from Canada and Mexico.
Europe was not mentioned in Trump’s first tariff announcement, but EU politicians will likely be concerned that it is only a matter of time before the newly elected president focuses on the automotive sector of the 27-member bloc.
For Germany, the potential introduction of U.S. tariffs on European cars comes at a time when its major Original Equipment Manufacturers (OEMs) have already expressed concern.
In recent months, Volkswagen, Mercedes-Benz Group, and BMW have warned about profit reductions, citing economic weakness and low demand in China, the world’s largest car market.
Rico Luman, Senior Economist for the Transport and Logistics sector at Dutch bank ING, pointed out that Germany's automotive sector is particularly vulnerable to Trump’s tariff threats.
According to data collected by Eurostat and ING Research, Germany is the largest European exporter of passenger cars to the U.S. Last year, its export amounted to 23 billion euros ($24.2 billion), accounting for 15% of Germany’s total exports to the U.S.
The potential introduction of tariffs on German automakers, according to Luman, would worsen an already difficult situation.
"This is the heart of the manufacturing industry, right?" Luman said in a video call with CNBC. "The automotive industry is tied to the steel and chemical industries, so the entire supply chain is involved."
A spokesperson for the German government declined to comment when contacted by CNBC.
Volkswagen, BMW, and Mercedes-Benz
While some analysts chose not to take Trump’s promise of turning German automakers into American ones at face value, they warn that additional U.S. tariffs will worsen the challenges facing the global automotive industry.
"This was campaign rhetoric, but there will be some pressure on imports, whether through tariffs or other unilateral actions," said Michael Robinet, Executive Director of Automotive Consulting at S&P Global Mobility, in a comment to CNBC through a video call.
"Many economists, including myself, are still concerned about the fact that we are still hovering around a 4% unemployment rate in the U.S., so trying to attract a lot of additional work to the U.S. could be problematic," he added.
In addition to the tariffs Trump proposed on China, Canada, and Mexico, the newly elected U.S. president pledged to implement a general tariff of 10% or 20% on all goods entering the country. However, it remains unclear whether this promise will translate into U.S. policy.
"We are evaluating the tariffs proposed by Trump," a Volkswagen representative told CNBC via email.
The company headquartered in Wolfsburg stated that over 90% of the vehicles it currently sells in the U.S. are produced in North America and meet the criteria for a duty-free regime under the U.S.-Mexico-Canada Agreement (USMCA).
However, the proposed tariffs on Canada and Mexico by Trump could potentially undo the USMCA.
Mercedes-Benz, meanwhile, stated that it currently employs more than 11,000 people in the U.S., primarily producing passenger cars and vans at 12 key production sites. "We look forward to a constructive dialogue with the new administration in the U.S.," a spokesperson said to CNBC.
BMW, which declined to comment on the tariff threats from Trump, has a nationwide footprint in the U.S., with approximately 30 plants across 12 states, including the world’s largest BMW production facility in Spartanburg, South Carolina.
Shares of Volkswagen and BMW have dropped by about 23% since the beginning of the year, and Mercedes-Benz Group has fallen by about 13% during the same period.