- The U.S. and European Union have agreed a deal that means Washington will impose a blanket tariff of 15% on most EU goods.
- Automotive industry groups have welcomed the breakthrough, while expressing concern about the potential consequences.
- The German Association of the Automotive Industry (VDA) said Monday that the new tariff reality will cost domestic car companies billions every year.
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The framework trade agreement with the European Union has been welcomed by U.S. President Donald Trump as the largest trade agreement ever made and as being “great for cars.”
The Trump administration will slap a 15% blanket tariff on the majority of EU goods as part of an agreement reached between the U.S. and the EU on Sunday.
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It nearly halved the current tariff rate on Europe’s auto industry from 27.5% and is a substantial decrease from Trump’s threat to levy penalties of 30% starting on August 1.
Despite applauding the trade agreement, industry associations have voiced serious concerns about the consequences of the new tariff realities.
Following difficult discussions, European Commission President Ursula von der Leyen referred to the agreement as a “good deal” while sitting with the U.S. president in Scotland on Sunday.
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Although it provides some brief respite, the U.S. trade deal puts Europe at a disadvantage.
Following the U.S. and EU strike trade agreement, European markets reach a four-month high.
“Fundamentally positive” is how the German Association of the Automotive Industry (VDA) described the U.S.-EU agreement that prevents a transatlantic trade war on Monday.
In a statement, VDA President Hildegard Mller stated, “The decisive factor now will be how the agreement is structured in concrete terms and how reliable it is.”
“However, it is also clear that the US tariff of 15 per cent on automotive products will cost German automotive companies billions annually and place a burden on them in the midst of their transformation,” M ller stated.
In addition to advocating for the provision of support to automotive supply chains, the VDA urged the EU to make the framework conditions globally competitive for businesses and investors “in order to become more attractive and relevant as an investment location again.”
The U.S.-EU trade deal is a significant step toward reducing “intense uncertainty,” according to the European Automobile Manufacturers Association, an industry lobby group that welcomed the news in principle on Monday.
ACEA Director-General Sigrid de Vries stated in a statement that “the US will retain higher tariffs on automobiles and automotive parts, and this will continue to have a negative impact not just for industry in the EU but also in the US.”
ACEA stated that it would carefully review the agreement’s remaining issues that require clarification.
The new 15% tariff rate on automobiles shipped from the EU to the US is obviously far better than the previous 27.5% rate, but it still represents “a significant burden” for automakers, according to Rico Luman, senior sector economist for transport and logistics at Dutch bank ING, who made the statement on Monday.
“Margins are under pressure in a multi-challenge market and the bill can’t be fully passed on to customers without volume losses,” Luman told CNBC via email.
Carmakers were already having trouble with the impact of the tariff, according to the second-quarter results season, but Luman noted that more would follow in the upcoming months.
Additionally, the weakening currency complicates matters and raises the cost of importing US cars. Global automakers are therefore searching for methods to modify their manufacturing footprints within existing facilities,” he continued.
During early morning trading, the Stoxx Europe automobiles index led advances, rising as much as 1.6% before turning around and falling into negative territory.
French provider of auto partsAt 12:33 PM London time (7:33 AM ET), Valeo was up 4.3%, while Ferrari, a high-end Italian automaker, was up about 0.9%. However, the Volkswagen, Mercedes-Benz, and BMW groups in Germany all had declines of more than 1.3%.
According to Rella Suskin, an equity analyst at Morningstar, EU automakers who depend more on imports from Europe are likely to gain from the U.S.-EU trade agreement.
“We estimate thatPorsche, Mercedes, BMW, and Volkswagen, in that order, are the most significant beneficiaries of this trade deal, with a greater share of imports from Europe into the US versus Mexico and/ or Canada,” Suskin stated.
“Stellantisimports a single-digit share of its volumes from the EU for sale in the US, and thus should not see meaningful upside,” she stated.
On Monday, shares of Stellantis, a Jeep manufacturer traded in Milan, were last noted down 0.6%.
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