Auto tariffs trouble trade

Threat of US import tariff increase adds to European automotive market woes.

Already confronted with a number of challenges - the costly shift to battery electrical vehicles (BEVs), rising competition from China, emissions targets and flagging consumer demand - Europe’s automotive sector, its suppliers and logistics services providers (LSP) could well do without 25% tariffs on new vehicles exported from the EU to the US from 2 April.

Justifying the move, President Trump said: “The EU has been very unfair to us. We have a (trade) deficit of $350 billion. They don’t take our cars. They don’t take our farm products. They don’t take almost anything. They take very little. And we’re going to have to straighten that out, and we will.”

On another occasion, he remarked that the US had “millions of cars coming in (from Europe)– BMW, Mercedes, Volkswagen and many others”.

The EU, Germany and Italy in particular, have long been a key exporter of vehicles to the US. In 2023, European automakers exported vehicles and components to the US worth €56 billion [$60.9 billion] accounting for 20% of EU’s total automotive export value.

Trump’s argument is that the tariffs are not only a means of equilibrating international trade but also a way of pushing EU automakers into manufacturing more vehicles in the US.

He has previously said: “When they come into the United States, and they have their plant or factory here, there is no tariff.”

However, European manufacturers already account for around 20% of US auto export volume – making them doubly vulnerable to a mounting US-Europe trade war.

Some analysts believe Trump is playing hard ball in order to establish parity on auto tariffs. The EU currently imposes a 10% levy on vehicle imports, while for the U.S. it’s only 2.5%.

Whatever his tactic, the European Commission has warned that if the tariffs on automotive (and other) products from the EU are introduced, it would have no choice but “to respond firmly and swiftly”.

Driving a State of Limbo

Professor John Manners-Bell, CEO of Transport Intelligence (Ti Insight), a consultancy providing market research and analysis to the logistics industry, told AJOT there was no doubt that tariffs on European car exports to the US would have devastating consequences, German and Italian manufacturers being the worst affected.

“Unless the already weakened sector can find new markets for its vehicles (and this will be tough) there will inevitably be significant job losses. Even if President Trump doesn’t go through with his threat or the EU agrees to his demands to reduce tariffs on US cars, the uncertainty will inevitably impact on business plans until the political environment becomes more stable.”

The threat of tariffs has left automotive logistics specialists in a state of limbo. Should they brace themselves for a sharp dip in demand for EU-made vehicles in the US or will the trade war initiated by Trump end up being simply no more than bluster to enhance a bargaining position?

The Brussels-based Association of European Vehicle Logistics (ECG), whose members own or operate more than 470 car-carrying ships, 14,000 purpose-built railway wagons, 23 river barges and more than 26,000 road transporters, can do little else but “wait and see,” its executive director, Frank Schnelle, told AJOT.

“The potential impact of increased tariffs is difficult to predict. There are ongoing discussions, possible counter-measures, and negotiations. In the mid-term, both production in Europe for export and imports could be affected. We will further observe the developments.”

Front-Loading of Vehicles to the US

Rico Luman, senior sector economist, Transport and Logistics, at Dutch bank ING, said the increase in US tariffs could have a significant impact on European brands such as Volvo, VW and Mercedes but also for those without a manufacturing footprint in the US. “However, given their low-price elasticity, high-end European premium models will probably be less affected than those in the mainstream category.”

While finished products could suffer most, there may be gains for containerized components.

“With car carriers set to be hit hard, there’s likely to be some front-loading of vehicles to the US this month, such as we saw with imports of Chinese vehicles into Europe ahead of the EU tariffs.”

Cost Pressures, Slim Margins

Turning to the current state of the automotive market in Europe generally, Schnelle said that over the past year, the ECG has seen an imbalance between demand and available vehicles.

“Many (if not all) manufacturers expected BEV (Battery Electric Vehicles) sales to grow much faster, which, as we know, did not happen. Chinese manufacturers focused on BEVs. However, the situation at ports and (inland) vehicle compounds is not solely due to Chinese OEMs but rather to certain models that were less in demand than expected. Overall, manufacturers have adjusted by bringing more hybrid vehicles to the market, including Chinese OEMs, who, for the first time in December 2024 had a higher share of non-BEV imports into Europe.”

Schnelle recalled that it was only two years ago that the ECG’s members were facing demands from OEMs to invest in more capacity.

“They complied but today are once again feeling the cost pressures from the market, while overall costs have not decreased. The financial situation of some OEMs is having an impact on these high-cost pressures. However, I am not aware of any bankruptcies among our members.”

Earlier this year, German premium car manufacturer Mercedes-Benz’s decision to cut its freight costs by 10%, resulting in a corresponding reduction in freight rates, caused uproar among the country’s SME road haulers serving the automotive industry.

Trade body BGL claimed such a move, thought to be industry-wide, lacked legitimacy and would further erode already slim profit margins of road freight transport, which range between 0.1% and 2% and push its members out of the market in favor of low-cost providers from Eastern Europe.

Commenting at the time, Rico Luman, senior sector economist, Transport and Logistics, at Dutch bank ING, said that LSPs and haulers had felt the pain of lower unit production in automotive for a prolonged period but that contract rates were decent and pretty much stabilized moving into 2024. However, since then, carmakers’ profit margins have dropped and they have become much more active in reducing costs, and this has cascaded down to their suppliers in transport and logistics.

“Trucking is a low-margin business, so absorbing a significant ‘haircut’ [in freight rates] will be difficult. LSPs have higher margins but probably won’t take the majority of it. The outcome could be more insolvencies among SMEs and even more hauler activity shifting to companies or subsidiaries based in Eastern Europe,” Luman noted.

As the first quarter of 2025 draws to a close, the European automotive market continues to face excess capacity, mainly caused by ongoing low sales, according to Luman. “We don’t expect any major change this year. Our forecast for Europe is +1.5% for new registrations which last year were still only 82% of the pre-pandemic level.”

As for Chinese automakers’ share of the European market, Luman revealed that that this has shrunk somewhat in the second half of 2024 following the imposition of EU import tariffs.

“However, it won’t be the end of Chinese brands making inroads in Europe. BYD is going to produce in Europe (Hungary) and is certain to push ahead in the coming years as these EVs are perceived as good quality.”

In February this year, Germany’s BLG Logistics signed a partnership agreement with China’s Cosco Shipping Car Carriers which will see the BLG Auto Terminal Bremerhaven developed into a central port of entry for the German market and also a hub for markets in Scandinavia, Central and Eastern Europe and the Baltic states.

‘Temporary Mild Positive’

Luman also highlighted that the European Commission had recently announced an easing in CO2 targets for 2025 for auto makers which may put a brake on EV growth.

“The fact that ICE and hybrid vehicles contain more European-origin components could be a temporary mild positive for automotive logistics providers although manufacturers will need to catch up on BEV production at some point,” he added.