Assessing the impact of US tariffs on the European automotive sector

Car trade is one of the EU’s most important export sectors, accounting for 60% of the EU’s overall trade surplus. Among its global trading partners, the US stands out as one of the most important export markets for the European automotive industry. This report examines how recent US tariff measures could affect the various segments of the European automotive industry.

Tariffs are back at the forefront of current economic policy. The new US administration has increased import tariffs on the automobile sector, steel, and aluminum, in addition to imposing flat reciprocal tariffs on all major trading partners. The first round of new US tariffs targeted the steel and aluminum sectors and was subsequently expanded to include automobile and automobile parts (see table 1). On “Liberation Day,” April 2, 2025, the US administration also announced various reciprocal tariff rates on products from selected regions. A 20% tariff rate was applied to all imports from the EU. On May 23, 2025, the tariff rate for the EU was announced to increase to 50%. Although tariffs on specific products have already been implemented (see table 1), retaliatory tariffs – including the May increase – have been put on hold until July 9, 2025.

The EU responded to the US steel and aluminum tariffs by publishing a list of products subject to retaliatory tariffs on March 12, 2025. This initial list covered imports worth a total of EUR 26bn. On May 8, 2025, the EU followed up with a second list of targeted goods in response to broader US retaliatory tariffs. This second list covered EUR 95bn worth of EU imports from the US. Both lists are currently under consultation, allowing affected stakeholders, industries, and consumers to submit their views over a four-week period. If negotiations with the US fail to yield a satisfactory outcome, the EU will have a legal basis to impose tariffs on the listed products.

The first list of goods targeted a limited selection of vehicles, mostly motorcycles. In value terms, EU imports of these vehicles from the US totaled less than EUR 6m in 2024 (see figure 1a). The second tariff list includes passenger cars among its targeted products. In 2024, the EU imported EUR 6bn worth of cars from the US (see figure 1b). Interestingly, electric vehicles and vehicle parts were excluded from the list, possibly reflecting the EU’s reluctance to hinder the mobility transition and its recognition of the globalized nature of the automotive industry.

Across all vehicle categories,[1] the EU exports more to the US than it imports, as we will see in the following section. As a result, there is a risk that further escalation could end up harming the EU more than the US.

[1] The vehicles considered fall under chapter 87 of the Combined Nomenclature, which is used by the EU to classify goods in international trade. This includes categories: 8702, 8703, 8704, and for vehicle parts, 8708.

Passenger cars

Low-emission vehicles: electric, plug-in hybrids, and hybrid cars

Zooming in on low-emission vehicles,[2] the EU also recorded a trade surplus in this segment. Its largest export markets in this segment were also the UK (30%) and the US (25%). Combined, these two markets accounted for approximately EUR 21.3bn of exports in 2024. Total extra-EU-27 trade in low-emission vehicles, represented an export value of EUR 39bn and an import value of EUR 23bn. Given the importance of the US as an export market, tariffs on this segment could jeopardize the production of EU-made low-emission vehicles by dampening their demand in the US market.

[2] Vehicles considered from the combined nomenclature of chapter 8703 are: 87036010, 87036090, 87037000, 87038010, 87038090

Buses

In 2024, the EU imported EUR 5.1bn worth of buses.[3] The main trading partners are Turkey and China, which together accounted for the majority of imports. This is a trend that we have already observed in the electric city bus category. When aggregating all trading partners, the EU has a trade deficit of EUR 3.3bn in the bus category. Notably, the US represents less than 1% of all trade flows in this category, thus the impact of US tariffs on this segment will be limited.

[3] Including city buses and coaches.

Commercial vehicles for transportation of goods

For commercial vehicles used to transport goods weighing up to 5 metric tons, Turkey is the EU’s largest export market, while most of the EU’s imports come from China (see figure 5). Overall, the EU has a positive trade balance of EUR 2.7bn in this sector. This trade category includes vans, provided their main purpose is the transportation of goods. If a van is primarily intended for passenger transportation, it is classified under passenger vehicles instead.

When looking at vehicles used for transporting goods weighing over 5 metric tons, the EU recorded a net trade surplus of EUR 6.5bn in this segment. Trade with the US remains limited compared to other trading partners (see figure 6). As such, this entire sector is unlikely to experience any significant impact from future changes in trade policy related to finished vehicles.

Vehicle parts

The automotive industry has a highly globalized supply chain. All major European automotive groups – except Renault Group – have manufacturing facilities in, and exports to, the US. To optimize production, vehicle parts are manufactured where it is most cost-effective and then shipped worldwide for final assembly. This business model has been supported by a low-tariff environment.

In the vehicle parts and accessories segment, the EU recorded a trade surplus of EUR 25bn with non-EU countries in 2024 (see figure 7). This accounted for 17% of the EU’s overall trade surplus last year. The US is the EU’s third-largest export market in this category (EUR 8.7bn), following the UK and China. Given the importance of the US as an export market for vehicle parts, this segment is expected to be negatively impacted by the newly imposed 25% US tariff (see table 1).

The impact of tariffs on European original equipment manufacturers (OEMs) could be significant, as a considerable share of their revenue comes from the US market (see figure 8). Only parts of their supply chains are located in the US, thus it is unlikely they will be able to fully avoid tariffs. Additionally, production plants in the US will likely need to import vehicle parts from the EU, which are also subject to tariffs, potentially impacting their revenues.

Although 40% of Stellantis’ revenue originates from the US, the company includes several American brands within its group. Consequently, a significant share of its production is based in the US market, which may reduce its exposure to tariffs. While the Volkswagen Group includes several brands with manufacturing operations in the US, its subsidiaries Porsche and Audi do not have manufacturing facilities there and could therefore be more affected. On the other hand, Renault Group has no presence in the American market and is thus not included in the list.

To estimate the potential economic impact on the EU from the newly implemented and proposed tariffs on automotive trade, we consider the tariff as a price increase on the final value of the vehicle. Based on the Eurostat database, we estimate the average value of a car exported to the US by segment. This allows us to model three tariff scenarios: A 50% tariff that remains in place, a 25%, and a potentially negotiated lower tariff of 10%.

We estimate the potential impact of these price increases on vehicle demand by applying estimated price elasticity of substitution[4] for individual brands and for the overall market. The price elasticity of substitution measures the willingness of consumers to change their purchasing behavior in response to price changes. For passenger vehicles, the more expensive the car, the lower the elasticity of substitution, meaning that price increases have minimal influence on consumer behavior in this segment. Conversely, cheaper models tend to have higher elasticity.

If tariffs only affect prices for EU OEMs, while exporters from other regions and US manufacturers are not impacted, we can apply average brand elasticity to European exports. OEM’s own elasticity is measured by taking into account consumer shifts to cheaper alternatives. For example, if BMWs imported from the EU go up in price, consumers may shift to buying US-made Cadillacs –provided that Cadillac prices remain unchanged (see EU brands scenario in table 2). Under this scenario, a 50% tariff could reduce the export value of new European finished vehicles by EUR 26.4bn, while a 10% tariff could lead to a EUR 5.2bn reduction. These represent worst-case scenarios for EU automakers.

However, if all car brands increase prices equally, the impact is assessed using market price elasticity. In this scenario, consumers may postpone buying a new car altogether or go to the secondhand market instead (see market scenario in table 2). This scenario will be less impactful on EU exports to the US. A 50% tariff on EU exports of new passenger vehicles would increase costs by 50% across all car brands and is likely to decrease EU exports by EUR 5.2bn. A 10% tariff would decrease exports by EUR 1bn. These would represent best-case scenarios for EU automakers.

[4] Benjamin Leard and Yidi Wu (2023). New Passenger Vehicle Demand Elasticities: Estimates and Policy Implications

The real impact from tariffs, if the recent 50% tariff threat doesn’t materialize, will fall somewhere between the two modelled scenarios where the price effect of tariffs is between 10% and 25%. On one hand, we know that tariffs on imported parts will also increase costs for US brands, so a scenario where only EU brands are negatively impacted is unlikely. On the other hand, a 50% price increase across all brands due to a reciprocal EU tariff is also highly unlikely, as US OEMs have supply chains within North America that would not be impacted by this reciprocal tariff.

This analysis is sensitive to three key dynamics that could significantly influence our estimates:

As trade policy shifts, companies will be forced to reconsider their business models, for example, whether to onshore production to the US or temporarily lower prices. The dominant strategy will likely depend on the consistency of trade policy over the medium to long term.

Given the rapid shifts in the geopolitical landscape, we previously outlined several scenarios for how global trade could develop. The recent trade deals signed between the US and China, and between the US and the UK (on May 14, 2025), suggest that a negotiated tariff could also be a promising path for the EU. If the EU were to follow a model similar to the UK-US deal, EU exporters might face a 10% tariff within a quota, with additional exports subject to a 25% tariff.

The final response from the EU, and its ability to secure a trade deal with the Trump administration, will be crucial for the automotive industry, considering the industry’s reliance on exports to the US. With a consistent trade surplus in its favor, the EU arguably has more to lose in a trade conflict with the US. However, the biggest loser in any high-tariff scenario will undoubtedly be the American consumer, who would face higher vehicle prices regardless of the outcome.