As Donald Trump prepares to take office on January 20, Europe’s already battered car industry is bracing for additional headwinds amid the threat of new tariffs from the incoming U.S. president.
Trump has pledged to impose steep new tariffs on goods coming from China, Canada, and Mexico in one of his first acts in office, a promise that could ignite trade wars.
That is bad news for European automakers who have already seen sales and manufacturing decline in top markets like the United States and China.
The potential tariffs would be felt hard not only by leading European car brands like Volkswagen, Volvo, and Stellantis -- the conglomerate that produces Fiat, Chrysler, and Citroen -- but also for the Central and Eastern European countries whose economies rely heavily on making them.
Toma Savic, a former director at Zastava, a Serbian international car manufacturer that was shuttered in 2008, said the tariffs would be a particularly hard blow for operations in the Balkan country.
"This inevitably would lead to the shrinking of production in Europe and mass layoffs," he said.
Zastava later became Fiat Chrysler Automobiles Serbia, which is owned by Stellantis.
Based in Kragujevac in central Serbia, Fiat Chrysler Automobiles Serbia has already been struggling to recuperate its foothold in the European auto industry prior to the breakup of Yugoslavia in the early 1990s when it assembled 200,000 cars annually and exported them to 26 countries.
Germany’s auto industry is also likely to be highly vulnerable to Trump’s promised tariffs, especially given that Europe’s biggest economy is by far the region’s largest exporter of passenger cars to the United States.
European and American carmakers could lose up to 17 percent of their combined annual core profits if the United States imposes import tariffs on Europe, Mexico, and Canada, according to some estimates.
Trump’s Tariff Vision
While Europe was not specifically mentioned in Trump’s first tariff announcement in late November, he took aim at the European Union while on the campaign trail earlier this year and accused European partners of unfair trade practices and stealing American manufacturing jobs.
"They don’t take our cars, they don’t take our farm products, don’t take anything,” Trump said on the campaign trail in October. “They are going to have to pay a big price.”
The U.S. market is the main destination for European passenger cars. Exports amounted to 42.5 billion dollars in 2023, according to Statista, a German online platform that specializes in data gathering and visualization.
In comparison, the value of U.S. vehicles imported to the EU was around 7.8 billion dollars during the same period.
Trump said on the campaign trail in September that he wants German automakers to become "American car companies” and “build their plants here.”
He added that he was prepared to offer low taxes and energy costs to draw more companies to set up manufacturing inside the United States.
In 2016, German carmakers avoided 35 percent tariffs floated by Trump by investing in more production in the United States.
But Trump's new proposed tariffs could make it more costly for European automakers to set up U.S.-based factories.
A Make Or Break Moment
The threat of new tariffs will add to already growing pressures facing the European auto industry as it looks to compete for the future electric vehicle (EV) market that is dominated by Chinese manufacturers.
Earlier this year, the EU imposed duties of up to 35 percent for EVs from China saying that the “unfairly subsidized” cars have given them a market foothold.
Added to this, car sales for EVs across the EU have dipped downward and some governments have repealed subsidies meant to incentivize consumers to buy the cars.
The rise of Chinese companies, such as EV-leader BYD, has also seen Western car brands lose market share inside China at a steady rate, with Volkswagen in particular grappling with declining sales.
Between tougher competition from China, declining sales at home, and new pressure from Trump, many European automakers are facing a bleak outlook.
Back in Kragujevac, Fiat Chrysler Automobiles Serbia is grappling with weak demand, including several fully electric products delayed entirely or produced at tumbling rates.
Jugoslav Ristic, a long-time union official in the car industry in Serbia, said the setbacks are a result of “customs wars and unfavorable business conditions.”
There is also concern that the industry could be further hit by a trade spat if Brussels responds to possible U.S. tariffs. Such an event could increase costs for consumers in both the United States and Europe and particularly hit Germany, the continent’s car behemoth.
The German Economic Institute predicts that if Trump imposes 20 percent tariffs on the EU it could cost the German economy up to 192.5 billion over four years.
Those costs would also have ripple effects in the parts of Central and Eastern Europe that are dependent on car manufacturing.
