MW Trump wants a 25% tariff on cars from the E.U. Where he could be going wrong.

By Victor Reklaitis

Automakers are making shifts in response to the president's stances

President Donald Trump's tariff proposals include a 25% levy on auto imports from the European Union, as he maintained Wednesday that the trade bloc has "taken advantage" of the U.S. and its member nations "don't accept our cars."

Some trade experts haven't been won over by his proposals, however, even as the E.U.'s big car companies are making shifts in response to Trump 2.0's stances.

"I do think the president is really cherry-picking," said Jennifer A. Hillman, a Georgetown University professor focused on trade who served as general counsel for the U.S. Trade Representative during the Clinton administration.

"He focuses, for example, a lot on the tariff on cars - that the European Union has a tariff of 10% and we have a tariff of 2.5% and that's his big example of how outrageous this is, and yet he doesn't remind everybody that we have a tariff of 25% on trucks," Hillman added, as she spoke Thursday during a webinar run by the Washington International Trade Association. "If you look across the entire sector of ... vehicles, our tariff is higher than Europe's, so I think we need to be really careful about accepting this myth that everybody else has really high tariffs, and we don't, and somehow, therefore, we need to do this major rebalancing, because everything is so unfair to the United States. I don't think that is true."

She said the U.S. has a trade-weighted average tariff of 2.2%, while the EU is at 2.7% and China is at 3%, as she suggested it's not accurate to say there's a "big gulf" between the U.S. and its trading partners.

The Trump White House's statement that backs a "fair and reciprocal plan" on trade has highlighted that the EU imposes a 10% tariff on light vehicles, while the U.S. only imposes a 2.5% tariff. The statement, released two weeks ago, criticizes a range of "unfair trade practices" by America's trading partners. The Trump administration has promised a report on trade policies by April 1, along with possible new tariffs on April 2.

While Trump does not appear to have recently acknowledged America's 25% tariff on imported trucks - which has been in place for 60 years and applies to most sport-utility vehicles - he did speak favorably about this particular levy, often called the chicken tax, during his first term.

Given this existing levy, it makes sense that German automakers have U.S. facilities for producing their SUVs. The companies then ship those SUVs from the U.S. to Europe, even as they ship sedans from Europe to the U.S., as a Wall Street Journal report noted last week. Trump mentioned German auto companies' U.S. plants in October, albeit not in a positive way as he said they weren't building vehicles but just assembling pieces from a box and a child could do it.

This month, German automakers have indicated they're making some new shifts in response to Trump's stances. Mercedes-Benz (XE:MBG) plans to localize more production at its plant in Alabama, and Volkswagen's (XE:VOW3) Audi unit currently has no U.S. production base but plans to announce a U.S. site this year, according to a Reuters report last week. The report also noted that BMW (XE:BMW) has called for the EU to drop its tariff on U.S. auto imports to 2.5% from 10%, which would benefit the company given it exports cars to Europe from an American plant.

Ahead of Trump's Wednesday remarks on tariffs targeting the EU - when he said "it'll be 25% generally speaking, and that'll be on cars and all the things" - he already had threatened on Feb. 18 to impose tariffs on foreign-made automobiles "in the neighborhood of 25%."

A spokesman for the European Automobile Manufacturers Association declined on Thursday to comment at length on Trump's tariff plans, telling MarketWatch that they're "currently entirely hypothetical," and there is "no concrete information to discuss."

General Motors $(GM)$ has retreated in Europe in recent years, having sold off its Opel and Vauxhall brands in 2017, while Ford's $(F)$ Europe unit two years ago announced the elimination of 3,800 jobs in an effort to have a leaner, more competitive business.

-Victor Reklaitis

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February 27, 2025 15:18 ET (20:18 GMT)

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