The current trade policy situation between the USA and the European Union is having a significant impact on the German automotive industry. We have summarised an overview of the current situation, the likely effects and our recommendations for action for you here:
The current situation
The US market is of key importance for German car manufacturers: almost every second vehicle in the USA is imported, and around 60 per cent of the parts in US-made vehicles come from abroad. With a share of 13.1 per cent, Germany is the EU's most important car exporter to the USA, followed by the UK and France. BMW sold almost 400,000 vehicles in the USA in 2024 – around a fifth of its total sales. Porsche achieved almost a third of its total sales there. Volkswagen, Audi and Mercedes-Benz each recorded a sales share of 12 to 15 per cent in North America.
This strong market integration is now under pressure: the US government under President Donald Trump has significantly increased its import tariffs on automobiles as of 3 April 2025. A new additional duty of 25 per cent (US Section 232) will be added to the existing duties. This affects all vehicles and vehicle parts that were neither produced in the USA nor are considered originating products under the free trade agreement with Canada or Mexico (USMCA). For cars from the European Union, this means an increase in the duty rate from the previous 2.5 per cent to 27.5 per cent. For pick-ups and light commercial vehicles, the duty rate will even rise from 25 per cent to 50 per cent.
From 5 April 2025, all imports from the EU will also be subject to a "reciprocal tariff" of 10 percent, which will be levied in addition to the existing US tariffs. A further increase of 20 per cent is planned, but has been postponed for 90 days to allow time to reach an agreement with the EU on the trade conflict. However, vehicles and vehicle components, which are already subject to additional tariffs of 25 per cent under US Section 232, are exempt from the reciprocal tariffs.
Nevertheless, the new reciprocal tariffs also affect components in the automotive industry that are used across all sectors - such as batteries, engines, transmissions and electrical components. In response to these developments, Audi, for example, has already stopped all vehicle imports to the USA.
The situation is further exacerbated by additional 25 per cent tariffs on products from Mexico, which also affects numerous vehicles from German OEMs that supply the US market from Mexico. In addition, US President Trump has announced the withdrawal of the United States from the USMCA trade agreement and has already introduced measures against imports from Canada and Mexico. A US withdrawal from the World Trade Organisation (WTO) is also on the cards. The European Commission's offer of a "zero-for-zero" tariff agreement to defuse the conflict has so far been rejected by the US.
Dr. Andreas Ries
Partner, Global and German Head of Automotive
KPMG AG Wirtschaftsprüfungsgesellschaft
Stephan Freismuth
Director, Tax
KPMG AG Wirtschaftsprüfungsgesellschaft
The impact on the automotive industry
The consequences for German car manufacturers are considerable. The largest companies in the industry could lose a quarter of their planned operating profit. There is also the threat of indirect effects, such as the diversion of products originally intended for the US market to Europe – with potential market distortions as a result.
A recent survey by the German Association of the Automotive Industry (VDA) shows that 86 per cent of medium-sized automotive companies expect the new US customs measures to have an impact. 54 per cent fear indirect consequences through customer and supplier relationships and around a third (32 per cent) expect their business activities to be directly affected. Added to this is increased exchange rate volatility and a rising risk of inflation in the USA, which further jeopardises the costing and investment security of German companies.
German OEMs currently produce around 1.6 million vehicles per year in the USA, around half of which are sold there. Around 500,000 additional vehicles are imported from Europe each year and would be massively affected by the new tariffs. This could result in price increases of up to 6,400 US dollars per vehicle.
Due to limited production capacities and the tight labour market in the USA, short-term adjustments to supply chains hardly seem realistic. Investments in new US production capacities, the actual goal of the current US tariff policy, may be significantly inhibited in their expected scope and speed due to the limited availability of qualified skilled labour and the uncertainty resulting from protectionist measures.
Despite these considerable challenges, there are also opportunities for German automotive companies. For example, manufacturers with established production in the USA could gain competitive advantages through increased local value creation and benefit from planned US corporate tax cuts. Due to their customer segments, luxury brands are in a more favourable position to pass on additional costs to consumers through higher prices.
In addition, the current situation incentivises brands to comprehensively diversify supply chains and create resilience to future trade risks. The customs policy could also accelerate a necessary course correction in the German automotive industry at home and initiate a shift away from the previous focus on the EV luxury segment, i.e. the market for high-priced electric vehicles. The first steps in this direction can already be seen in the introduction of lower-priced electric models by OEMs.
Our recommendations for action
In the current trade conflict between the US and the EU, it is essential for companies to create transparency in their supply chains in order to effectively identify risks and quickly take targeted measures to minimise them. Correct tariff classification and the determination of the commercial origin of goods are crucial – they form the basis for the application of additional duties and other trade policy measures.
To avoid compliance violations and sanctions, companies should classify their goods correctly and determine the origin with legal certainty. In certain cases, it may make economic sense to further process products before exporting them to the USA. Higher processed products may be subject to lower additional duties, depending on the type of US measure.
However, it is strongly discouraged to deliberately structure the tariff classification or origin of goods in order to circumvent US measures. The US customs authorities have been instructed to strictly pursue and sanction such circumvention attempts. The latest announcements by the USA to extend additional tariffs, for example in the area of solar panels from South East Asia, make it clear that the government wants to consistently prevent evasive manoeuvres in the movement of goods.
So what is the right course of action for companies in the automotive industry now? In these volatile times, companies could find a possible solution by investing in local production facilities in the USA and building up a US supply industry. However, the overall circumstances should be carefully considered as a complete move away from globalisation could jeopardise synergies, particularly in the automotive industry.
A balanced approach that increases the US footprint while diversifying supply chains is critical to success. Even taking into account the decoupling of markets that has already been initiated with regard to key technologies, increased involvement in the US market can be beneficial.
Companies can also capitalise on untapped potential to reduce additional duties by reviewing their transfer pricing and customs valuation strategies. The use of specific customs procedures and free zones can help to avoid additional duties on goods that are not destined for the US market but are used in the production of US export goods.
As the political framework conditions are constantly changing, close coordination with the supplier and customer network on both sides of the Atlantic is essential in order to secure the movement of goods. The overall picture should always be kept in mind – not just the focus on additional US tariffs.
