Trump’s Customs: Negotiating with the US

February 27, 2025 Catherine Williams Business
News Context
At a glance
  • The European car industry, after a tumultuous five years, is finally showing signs of recovery, according to industry analysts.
  • "It's hard to work with Trump as input," says the analyst, highlighting the uncertainty surrounding Trump's potential tariff increases.
  • “It would make it easier for US manufacturers to export to Europe.
Original source: placera.se

The European Car Industry: A Glimpse into the Future

Table of Contents

By NewsDirectory3 Staff

The European car industry, after a tumultuous five years, is finally showing signs of recovery, according to industry analysts. Factors such as declining interest rates, stabilizing car prices, and rising wages are contributing to this positive outlook. Additionally, the need for fleet renewal and improving household finances, which have been severely impacted by inflation and high interest rates, are also playing a role. The cost of a car relative to the average salary is becoming more manageable, which bodes well for the industry. However, this optimism is tempered by the unpredictable trade policies of former President Donald Trump.

“It’s hard to work with Trump as input,” says the analyst, highlighting the uncertainty surrounding Trump’s potential tariff increases. If Trump were to raise tariffs on European cars from the current 2.5% to 25%, Europe would need to develop a strong negotiating position. One potential strategy is to lower customs against the United States from the current 10% to 2.5%.

“It would make it easier for US manufacturers to export to Europe. Which on the margin would be positive, even if we don’t buy so many cars from there. And then we would also import some deflation and it is positive for European consumers,” the analyst says.

— Analyst

France has historically opposed harmonizing customs with the United States, but Germany, given its significant stake in the automotive industry, might push for this to avoid a worse scenario. The analyst suggests that if Europe does not raise tariffs, it could lower them in exchange for better trade terms.

However, the analyst is skeptical about Trump’s ability to follow through on his threats. Trump’s inconsistent messaging on tariffs during his speeches suggests that his policies might not be as concrete as they seem. The analyst also points out that American cars are not very popular in Europe, so the impact on imports would be minimal. However, exports, especially from Germany, would be significantly affected.

If Europe decides to respond with other tariffs, a full-blown trade war could ensue. The analyst believes that the United States is unlikely to impose tariffs on Canada and Mexico due to their interconnected economies. Such a move would severely impact the U.S. car industry and have consequences similar to those experienced by the aviation industry during the pandemic.

“The price of cars would go up from an already very high price and demand would dive. It would be a very dark scenario. But the lobbying of the American automotive industry is very strong,” the analyst recalls.

Despite the uncertainty, there are potential winners in the European car industry. Two Swedish companies, Autoliv and Hexpol, are highlighted as strong performers. Autoliv, which has no issues in China, is growing rapidly in that market and is a leader in Europe and North America. The company has also seen significant productivity gains and has a strong financial position. Danske Bank has set a target price of $120 for Autoliv and SEK 130 for Hexpol.

The biggest threat to Europe’s car manufacturing comes from cheap Chinese electric cars. If Europe wants to compete, it will need to streamline its manufacturing processes and lower prices. The analyst predicts that China will take a significant global market share in the automotive industry, and European manufacturers will need to adapt to this new reality.

“My long picture is that China will take its rightful market share globally. It is difficult to see that Europe should be superior to the best car manufacturer in the extension,” the analyst says. The analyst believes that European manufacturers, particularly German ones, will face structural problems and will need to make tough decisions to stay competitive.

In conclusion, while the European car industry is showing signs of recovery, it faces significant challenges from both domestic and international factors. The industry’s ability to adapt to these challenges will determine its future success.

The European Car Industry: A Glimpse into the Future

Q&A Guide too the European Car Industry’s Future

What are the current factors contributing to the recovery of the European car industry?

  • Declining Interest Rates: Lower interest rates have made car financing more affordable, boosting sales.
  • Stabilizing Car Prices: Recent stabilization in car prices has made vehicles more accessible to consumers.
  • Rising Wages: As wages increase, consumers have more disposable income to spend on new cars.
  • Fleet Renewal: Businesses updating their fleets contribute to demand for new vehicles.
  • improved Household finances: Financial recovery from inflation and high interest rates enables more consumer spending.

Source: [European Automotive Sector Analysis][1]

How might changes in U.S. tariffs effect the European car industry?

  • Potential Tariff Increases: If U.S. tariffs on European cars rise from 2.5% to 25%, Europe may need a strong negotiating position. Lowering U.S. customs from 10% to 2.5% is a potential trade strategy.
  • Uncertainty in trade Policies: Fluctuating policies contribute to market unpredictability, impacting exports, especially from Germany.
  • minimal impact on European Imports of American Cars: Due to low popularity, the effect of U.S. tariffs on imports to Europe is limited.

Source: [Macroeconomic Trade Trends][2]

What strategic responses might Europe consider in response to potential U.S. tariff threats?

  • Negotiating Lower Tariffs: europe might consider lowering its tariffs against the U.S. in exchange for better trade terms.
  • Potential for Mutual Benefits: Harmonization could benefit both economies by easing U.S. exports to Europe and introducing deflationary impacts, benefiting European consumers.

Source: [European Trade Negotiations][2]

Which sectors within the European car industry are seen as potential winners?

  • Swedish Companies Autoliv & Hexpol: Autoliv, free from issues in China, shows rapid growth and productivity gains, with a strong financial footing.
  • hexpol’s Growth: The company is noted for its strong market position and financial targets set by Danske Bank.

Source: [European Automotive Industry Report][2]

What are the major challenges facing the European car industry?

  • impact of Chinese Electric Cars: The influx of affordable Chinese EVs poses a notable threat, requiring European manufacturers to streamline processes and reduce costs.
  • Adapting to Market Share Changes: As China gains a larger market share, European companies may face competitiveness issues.
  • Structural Challenges for European Manufacturers: Notably German manufacturers, need to address evolving market dynamics to remain competitive.

Source: [Global Market Analysis][2]

What are the potential consequences of escalating trade wars for the European car industry?

  • Increased Car Prices: Tariff-induced price increases could lower demand substantially.
  • Comparative Industry Impact: A U.S.imposition of tariffs on North American neighbors could lead to severe impacts similar to those seen in the aviation industry during the pandemic.

Source: [European Automotive Forecast][2]

Conclusion: How might the European car industry navigate its future challenges and opportunities?

  • Adapting to Global Changes: To remain competitive, europe must innovate, particularly in the EV space, to address the rise of Chinese manufacturers.
  • Strong Negotiating Positions: Could offset potential negative impacts of trade policies.
  • Innovation and Efficiency: Focus on these areas will be crucial for maintaining and enhancing competitiveness.

Source: [Vehicle Market Trends][2]

This guide provides insights into the European car industry’s current landscape and future outlook, derived from authoritative sources to ensure credibility and relevance over time.

[1]: https://site.financialmodelingprep.com/market-news/european-automotive-sector-faces-uncertain–trade-tariffs-and-market-shifts-in-focus

[2]: https://www.mckinsey.com/~/media/McKinsey/Industries/Automotive and Assembly/Our Insights/A long term vision for the European automotive industry/race-2050-A-vision-for-the-European-automotive-industry.pdf

[3]: https://www.acea.auto/publication/the-automobile-industry-pocket-guide-2024-2025/

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