Donald Trump has laid out his plans for 25pc tariffs on vehicles imported into the US - SAMUEL CORUM/POOL/EPA-EFE/Shutterstock
Donald Trump’s decision to slap 25pc tariffs on car imports is at one level aimed at encouraging more of his countrymen to buy American vehicles.
But the president’s decision to target foreign vehicles that flood into the US each year ultimately stems from his anger that far fewer go in the opposite direction. When it comes to cars, the imbalance of trade between the US and Europe is stark.
EU carmakers ship more than 700,000 vehicles to America each year at an average price of about $50,000 (£46,000), generating close to €40bn (£33bn) in export sales. British carmakers also ship a further 100,000 to the US.
Trump is hoping that his barrage of import duties will pile enough pressure on manufacturers to trigger a reversal of this decades-old deficit.
In particular, the White House is looking to target the level of VAT charged on cars sold in the UK and EU, which adds 20pc and 21.8pc to the purchase price, respectively.
Because the US does not apply VAT, apart from in a few states such as New York, the Trump administration argues that European manufacturers can sell cars at lower prices across the Atlantic, incentivising them to compete with American businesses.
However, while the president’s tariffs might conceivably lead some Americans to reconsider buying a $100,000-plus Mercedes or Range Rover, they’re also likely to prompt tit-for-tat levies that could further undermine US exports.
Andy Palmer, who led Nissan’s move into electric vehicles (EVs) and went on to run Aston Martin, questioned whether a trade war was the best route to winning over foreign drivers.
He said it is more likely that Ford and General Motors (GM) will lose ground to the rest of the industry. “You either join in and be globally competitive or you step back, protected by tariffs, and wait to die,” he said.
Americans have long desired European mainstays such as BMWs, Ferraris and Fiats, as well as keenly priced family models from Japan.
However, US cars that are best-sellers at home barely register in Europe, with the pickup trucks that dominate the American market – led by the Ford F-class, Chevrolet Silverado and Ram truck series – a rare sight on British roads.
For many, American models are too big and brash for Europe’s roads.
Drivers of Range Rovers and BMW X5s may be used to barbs about driving “Chelsea tractors”. But American SUVs and pickups are of a different order when it comes to size, making European 4x4s look small.
When Trump asked last month, “how many Chevrolets or Fords do you see in the middle of Munich?”, he is unlikely to have registered how many US models would actually fit through the city’s narrower streets.
As heavier vehicles, American cars also consume much more fuel. For example, the Ford F-250 pickup weighs in at close to four tons and has a seven-litre engine that delivers just 15 miles to the gallon.
That may not matter so much in the US, where petrol currently averages 82 cents (63p) a litre, but in the UK, where the equivalent price is £1.85 because of higher taxes, it is a major issue.
Mr Palmer said it would be wrong to look down on US carmaking capabilities, but admitted that European engineering is “more nuanced”.
“The European market is hard to compete in,” he says. “It has high-quality explanations, relatively low pricing and tight profitability.”
US manufacturers have long made cars in Europe, focusing on models better suited to the local market. Yet they have backed off from their investments in recent years.
GM offloaded its Opel and Vauxhall brands to Peugeot, now part of Stellantis, in 2017, although it has retained small sales operations for its Corvette and Cadillac brands.
Ford at various times owned Jaguar, Land Rover, Aston Martin and Volvo. It sold the first two in 2008 to Tata Motors of India, which turned JLR into Britain’s biggest carmaker.
Aston was then sold to private investors a year earlier, while Volvo found a buyer in Geely of China in 2010.
Ford continues to make its own-branded cars in Europe and the Ford Kuga was the UK’s best-selling car last year. The crossover model is built in Romania, with Ford’s UK plants at Dagenham confined to making diesel engines, while Halewood in Liverpool supplies electric drives.
The only American model to feature among Britain’s top 10 sellers in 2024 was the Tesla Model Y, production of which has recently switched to Berlin from Shanghai.
Meanwhile, European carmakers that have factories in the US warned that vehicles made there, such as the BMW X-series, will be hit by tariffs because they are largely assembled from imported parts.
The majority of those vehicles then go for export, making a positive contribution to the US trade balance, according to the European Automobile Manufacturers’ Association.
The trade body urged Trump to “consider the negative impact of tariffs not only on global automakers but on US domestic manufacturing”.
The impact of the measures on British car companies will depend on whether the UK is treated differently from other members of the EU.
Even in the event of a so-called carve-out from the tariffs, the interconnectedness of the industry and the fact that many UK firms are EU-owned means they could still be hit.
Palmer said the best hope for top-end brands such as JLR, Bentley, Aston Martin and McLaren that are reliant on the US may be to pivot their sales efforts towards Europe, the Middle East and China, though it will be “really hard work for one or two”.
More broadly, he said the industry faces a “flock of black swans”, as the impact of tariffs comes alongside the shift to electric vehicles, increased competition from China and a drop in consumer demand.
For US automakers, he warned that the import duties are likely to distance firms once at the heart of the American economy from the shift to EVs and self-driving vehicles, with one clear consequence.
He said: “In my mind, they’re handing the market to the Chinese, which is tragic.”
