Donald Trump’s Auto Tariffs Intimidate German Economy

President Donald Trump’s threat to levy tariffs on imported vehicles aims at the heart of Germany’s export-led economy, further straining relations between the two long-standing allies.

While Trump didn’t specifically point to Germany when calling for an investigation into protections for the US auto industry on national security grounds, he didn’t have to. Past statements have made clear that he resents the country’s trade surplus, which amounted to €14.2 billion ($16.7 billion) last year for Germany’s auto industry, Bloomberg reported.

That means any levies on imported autos stand to hit Volkswagen AG, BMW AG and Mercedes-Benz parent Daimler AG especially hard. Shares of all three companies dropped.

“We have to consider this as something of a provocation,” said Eric Schweitzer, president of the Association of German Chambers of Commerce and Industry, which estimates that auto tariffs would burden the country’s economy to the tune of €6 billion a year. “I have the growing impression that the US no longer believes in the competition of ideas, but only the law of power. It fills me with grave concern.”

Germany has been a frequent target of Trump’s attacks, with the president calling on the country to meet NATO defense-spending targets, complaining about the lack of American cars in Germany and refusing to budge on steel and aluminum duties. The ire stems from trade imbalances and unequal tariffs. The US levies just a 2.5% tax on cars imported from Germany and other European Union members, compared with a 10% charge on American cars sent to Europe.

“From such tariffs, no country would have more absolute losses to fear than Germany,” said Gabriel Felbermayr, director of the Ifo Institute’s Center for International Economics in Munich, estimating the impact on the country’s economy equivalent to 0.2 percentage points of gross domestic product, with Mexico taking a hit of 0.4 points.