Why Germany is vulnerable to US President Trump’s car tariffs

After years tangled in the "dieselgate" emissions cheating scandal, German carmakers could suffer huge losses if the United States carries out its threat to levy tariffs on European car imports.

Why Germany is vulnerable to US President Trump's car tariffs
New cars getting ready to be shipped from Bremen, northern Germany. Photo: DPA

Mammoth exports

Giants Volkswagen, BMW and Mercedes-Benz parent Daimler exported a total of 494,000 cars from Germany to the US in 2017, or 45 percent of all European auto exports to America.

At €22 billion, Germany accounted for 55 percent of the value of all European cars sold to the US that year, Pictet bank calculated in a research note.

SEE ALSO: German carmakers to hold talks with Trump over tariffs

Margins squeezed

“If tariffs were imposed that would make it much harder for the import brands to offer those high incentives” like discounts in the US market, analyst Peter Nagle of IHS Markit told AFP.

“The US brands could take advantage of those pricing mismatches.”

Meanwhile, Pictet noted that American “demand for European cars declines by around 1.5 to 3.0 percent when prices rise by one percent”.

Over the long term, the 25-percent tariffs mooted by President Donald Trump could halve the number of German cars shipped to the US as demand falls, the Munich-based Ifo institute predicted.

Ripple effect

Rating agency Moody's reckoned tariffs could prove a drag on German GDP growth of around 0.2 percentage points, while Pictet's estimate was higher, at 0.3 to 0.4 percentage points.

“Amongst the EU countries, Germany is by far most strongly affected by potential new US tariffs on car imports,” Ifo economist Gabriel Felbermayr judged.

President Trump in Washington, US, earlier this month. Photo: DPA

He suggested that the tariffs would cost the European economy nine billion euros per year, including five billion in Germany.

And the consequences for Europe's largest economy “would extend far beyond the directly affected firms,” an EY study published in December found, “given the high significance of the car industry in Germany and its weight in German-American trade relations.”

After the federal government slashed its GDP growth forecast for 2019 to 1.0 percent early this year, “the already shaky upturn would be in danger of ending,” analyst Charlotte Heck-Parsch of BayernLB bank warned.

“A key question is whether the US administration will also impose tariffs on car parts,” said Pictet analyst Nadia Gharbi. “If excluded, that would reduce the negative impact on EU countries.”

Snowball effect

German carmakers could try and cushion the effects of tariffs by producing more at their massive American factories, car industry expert Ferdinand Dudenhoeffer said.

But some brands, including Volkswagen subsidiaries Audi and Porsche, have no base in the US.

Meanwhile tariffs would be the latest broadside against an already battered industry, pounded by “dieselgate”, the US-China trade conflict, a general economic slowdown, the threat of a no-deal Brexit and the burden of massive investments in electric cars.

With Germany and other EU members' growth slowing, “a tariffs hike would come at a time when confidence is already in decline and vulnerable,” ING bank economist Raoul Leering noted.

What's more, retaliation by Brussels with tariffs on American products “could well lead to further protectionist steps by the US government… which in turn will have a negative feedback into production and employment,” he added.

By Yann Schreiber

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‘Infringement on air quality’: EU court slams Germany for pollution in cities

The EU's top court ruled on Thursday that Germany continually violated upper limits for nitrogen dioxide, a polluting gas from diesel motors that causes major health problems, over several years.

'Infringement on air quality': EU court slams Germany for pollution in cities
Cars sit in traffic in Stuttgart's Hauptstätter Straße in July 2020. Photo: picture alliance/dpa | Sebastian Gollnow

Germany infringed air quality rules “by systematically and persistently exceeding” the annual nitrogen dioxide limit in 26 out of 89 areas from 2010 to 2016, the European Court of Justice (ECJ) said in its ruling.

The European Commission, the EU’s executive arm, referred the matter to the ECJ in 2018 after almost a decade of warnings that went unaddressed.

The decision against Europe’s top economy echoes a ruling targeting France in October 2019 after the commission stepped up its anti-pollution fight in the wake of the so-called “Dieselgate” scandal that erupted in 2015 with revelations about Germany’s Volkswagen.

The motors caught up in the scandal — in which automakers installed
special emission-cheating devices into their car engines — are the main emitters of nitrogen oxides that the European Environment Agency says are responsible for 68,000 premature deaths per year in the EU.

READ ALSO: Five things to know about Germany’s dieselgate scandal

Nitrogen dioxide is toxic and can cause significant respiratory problems as one of the main constituents of traffic-jam smog.

Under EU rules, member countries are required to keep the gas to under 40 micrograms per cubic metre — but that level is often exceeded in many traffic-clogged European cities.

The judgement opens the way to possible sanctions at a later stage. However the air quality throughout much of Germany has improved in the last five years, particularly during the shutdowns in the pandemic.

The environment ministry said that 90 cities exceeded national pollution limits in 2016 — the final year covered by the court ruling. By 2019, the number had fallen to 25 and last year, during the coronavirus outbreak, it was just six.

The case involved 26 areas in Germany, including Berlin, Hamburg, Munich and Stuttgart as well as urban and rural areas in North Rhine-Westphalia, Mainz, Worms/Frankenthal/Ludwigshafen and Koblenz/Neuwied.

“Furthermore, Germany infringed the directive by systematically and
persistently exceeding, during that period, the hourly limit value for NO2 in two of those zones” — the Stuttgart area and the Rhine-Main region.