Is Europe Threatened by a Tariff Fiasco Due to Trump's Plans?

The recent announcements by U.S. President-elect Donald Trump to impose high tariffs on imports from Mexico and Canada could put significant pressure on European car manufacturers. Companies like Volkswagen and Stellantis, which operate extensive production facilities in Mexico, would be particularly affected by the measure. They use the country as a cost-effective production site in close proximity to the lucrative U.S. market. The plan to impose a 25% import tax aims to restrict imports from these countries unless Mexico takes stronger action against drug and human smuggling. However, this contradicts existing free trade agreements and could disrupt global supply chains. Analysts warn that such a regulation could hit European luxury brands, whose production facilities are neither located in the U.S. nor Mexico. An increase in production and export costs could significantly impair the competitiveness of European vehicles in the U.S. market. The stocks of Volkswagen and Stellantis already responded on Tuesday with losses of 4.7% and 2%, respectively. Some car manufacturers might find themselves compelled to expand their U.S. production capacities to adapt to the new circumstances. The automotive industry, currently battling a decline in demand, rising costs, and competition from China, would be particularly affected. Bernstein analysts predict that the automotive industry has limited time to adjust to these potential changes. At the same time, it is noted that U.S. car exports from Mexico account for almost 80% of local production. Therefore, an increase in tariffs could pose significant challenges to car manufacturers. Even though Trump was recently known for using the threat of punitive tariffs to put pressure on his negotiating partners, it remains unclear whether these plans will actually be implemented. Some companies, including Mercedes-Benz and BMW, could counteract the negative effects of tariffs through increased U.S. production. Nonetheless, investments in new production facilities are imminent, which are not easy to manage in economically uncertain times.