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Why Germany is vulnerable to US car tariffs
FRANKFURT AM MAIN, Feb 22, 2019 (BSS/AFP) – 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.
– 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 euros ($25 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.
– 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.
He suggested that the tariffs would cost the European economy nine billion
euros per year, including five billion in Germany.
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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 told AFP.
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.
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