Trump's Customs Duties Targeting Also Points Towards Germany
Trump sets sights on imposing hefty tariffs on European products, singling out German automobiles as a major target. The American President announced these tariffs would incur a 25% charge, stating, "We've made a decision, and it will be announced very soon, and it will be generally 25 percent, and that will be on cars and all that."
Trump's penchant for using tariff threats as bargaining chips stretches beyond trade negotiations. He has a history of parading numbers and timelines, only to eventually lift or modify the imposed tariffs. The question of when and if these tariffs will come into effect remains shrouded in uncertainty. In response, the EU Commission pledged to retaliate decisively and promptly against any unjustified barriers to open, fair trade.
Stock markets have already felt the ripple effects of this looming threat. Manufacturers of automobiles are particularly affected, with the European auto index dropping approximately 4% at the Frankfurt Stock Exchange. Trump has long criticized the presence of an oversaturated number of German car brands on US roads during his term in office.
Some economists have attempted to forecast the potential consequences of this escalating trade conflict. If a transatlantic war erupted with 25% tariffs on both sides, the European economy could shrink by approximately 0.5% in the first year, according to the Kiel Institute for the World Economy (IfW). EU exports to the US would drastically decrease – on average by 15-17% – with Germany expecting a hit of up to 20%. Overall, German exports would decrease by approximately 1.5%, potentially resulting in a 4% decrease in automotive sector production.
Even the threat of tariffs itself can inflict damage, asserts Julian Hinz from IfW, research director for trade policy. The uncertainty around which measures might be implemented stymies companies from strategically planning, potentially curtailing investments and detrimentally impacting economic growth on both sides of the Atlantic.
Beiersdorf, a consumer goods manufacturer renowned for brands such as Nivea, Eucerin, Chantecaille, La Prairie, and Tesa, has been affected by Trump's announced tariffs. These tariffs could pose "significant impacts" on Beiersdorf's business, according to CFO Astrid Hermann. Since a third of its US business is produced in-country, while the remaining two-thirds are manufactured outside the US, mostly in Mexico, the company has prepared an inventory in order to temporarily cope with these effects.
Enrichment insights:
In the event of these proposed tariffs, European exports to the US could see a 15-17% decrease within the first year, with Germany anticipating a more substantial reduction between 18-20%. This substantial fluctuation in exports could significantly impact the EU's trade surplus with the US, which was €157 billion in goods in 2023.
The resultant potential shrinking of the European economy by approximately 0.5% in GDP could lead to economic stagnation or even recession. Economists suggest that key sectors, such as cars and pharmaceuticals, could be the hardest hit, expecting a 20% drop in German sales to the US.
The unpredictability surrounding the implementation of these tariffs creates unrest in supply chains, making it challenging for EU companies to source products at reasonable prices. This instability could increase costs and potentially decrease competitiveness for EU businesses.
The announcement of Trump's proposed tariffs on European products, including automobiles, has triggered uncertainty in the EU Commission, leading them to threaten retaliatory measures. Beiersdorf, a prominent consumer goods manufacturer with popular brands like Eucerin, has identified potential significant impacts on its business due to these tariffs. Other manufacturers, especially those in the automotive sector, are also reacting to this uncertainty, with some already experiencing drops in stock prices.
