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UK nervous, EU cautious, China unfazed: How auto world is prepping for Donald Trump tariffs
Donald Trump is threatening to impose or raise tariffs on cars being imported into the US. How is the world reacting?
The automotive world is in a bit of a flux as newly-appointed United States President Donald Trump has started his term at the White House with an unequivocal threat to impose or raise tariffs on numerous products, including automobiles. In a bid to bolster American manufacturing, Trump has warned of trade wars with Canada and Mexico which could potentially see European carmakers suffer collateral damage. There may also be some ramifications in China, the world's largest automotive market.
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The double-edged threat to raise tariffs on products coming in from Canada and Mexico, as well as impose or hike tariff on several global regions - including European Union (EU), is a matter of concern for European automobile manufacturers. Many of these manufacturers have production bases in Canada and Mexico, and will be forced to shift facilities to the United States. For units being imported from EU into the US, a possible tariff hike will make these more expensive.
Did you know that around 90 per cent of cars manufactured in Mexico are exported and a fairly large chunk of these exports make way to the northern neighbour? Companies like Volkswagen, Mercedes-Benz, BMW and Audi have bases in Mexico but many are looking to either establish or expand US facilities. A large number of European auto component manufacturers are also producing in Mexico and will likely bear the brunt of a tariff hike.
Why is UK worried?
According to AFP, production of cars in the UK fell below one million in 2024 and dark clouds emanating from the Trump tariff threat is not helping matters. As factories here rejig operations to accommodate mass manufacturing of electric cars, Trump's direct attack on electric cars being imported into the US does not bode well for Britain even if most models meant for exports make way to the EU and not the US. As per lobby group Society of Motor Manufacturers and Traders, only 10 per cent of UK car exports make way to the US. And still, the worry is real.
Why is EU worried?
German automotive giants Mercedes and BMW have increased efforts to expand production capabilities within the US. This is to meet requirements for a car to have 75 percent of a vehicle’s content sourced from North America under the United States–Mexico–Canada Agreement free trade pact that came into effect in 2020. Now with the possibility of increased tariff on cars manufactured in Canada and Mexico, however, options may be limited other than to manufacture in the US.
For Volkswagen, many of its top-selling cars in the US - led by Tiguan - are manufactured in Mexico and so, the concerns are very real. Reports say around 29 per cent of Audis registered in the US in 2024 were shipped from Mexico.
Stellantis, which owns brands like RAM and Jeep, offer many hot-sellers in the US which are entirely produced in Mexico.
In fact, around half of all cars sold by European manufactures in the US are imported into the US.
Is China unfazed?
China is indeed unfazed. Joe Biden, the previous US President, had alread imposed 100 per cent tariff on electric cars made in China, prompting Chinese manufacturers like BYD and SAIC to reduce their dependence on the US market. Now Trump still considers China to be the single-largest economic threat to the US but as far as vehicles are concerned, he may be able to do very little to impact the rise and spread of Chinese manufacturers out on a global path.
