Tariff threat to German auto sector another headwind

In light of the US imposing an additional 25% tariff on auto imports, we're resending this note from last November which looks at the impact of US auto tariffs on the euro-zone.

The key point is that, assuming it is actually implemented over a sustained period, a 25% tariff will be quite damaging for Germany where auto exports to the US account for close to half a percent of value added in the economy. These sales could plausibly fall by 50% or so, though the net effect would also depend on the scope to redirect sales from the US to other countries and on any additional hit to car component producers. Note also that German manufacturers have significant facilities in the US which will not be as badly affected. (See also our detailed analysis of the German auto sector here.) In contrast to Germany, the fallout for Italy, France and Spain will be much smaller.

It is also worth noting that the initial response from the European Commission President, Ursula von der Leyen, seems quite conciliatory as she said “the EU will continue to seek negotiated solutions” albeit while safeguarding its economic interests. That may of course change, but it is consistent with our view that any retaliation by the EU will probably be quite moderate.