Trump Tariffs: Stellantis, VW and Volvo Most Exposed

As US President Donald Trump returns to the White House, his administration's trade policies are causing concern in the global automotive sector. European automakers, in particular, are bracing for the potential impact of new tariffs that could disrupt the North American market.

According to Moody's ratings agency, Stellantis, Volkswagen Group and Volvo are the European automakers most vulnerable to President Trump's tariff threats on cars exported from Mexico, Canada, and Europe to the US.

Impact of President Trump's tariff threats

Trump's proposed tariff plans aim to impose a 25% levy on all vehicles imported from Mexico and Canada. The move forms part of his broader strategy to pressure these neighbouring countries into curbing illegal immigration and tackling the flow of cross-border fentanyl shipments.

However, the ramifications of such a policy could significantly affect the automotive industry, especially European manufacturers who rely on North American markets for production and sales.

The proposed tariffs threaten to upend the deeply integrated supply chains that European automakers, such as Stellantis, Volkswagen and Volvo, have developed in North America over the years. These companies operate major manufacturing plants in Mexico and should Trump enforce the tariffs, they could be forced to relocate production to the US to avoid the steep import fees.

The process would be costly and time-consuming, exacerbating challenges these automakers face from declining sales in China and potential fines for not meeting European stringent emission targets.

Economic fallout: Recessions and price increases

The impact of these tariffs extends beyond the automotive industry. Economists predict that if the tariffs are implemented, they could trigger recessions in both Mexico and Canada. Furthermore, US consumers would face higher prices for vehicles, gasoline and other imported goods, which could reduce their purchasing power.

The situation creates a delicate balancing act for the President, who has made economic growth and cost-of-living issues central to his presidency.

In particular, the automotive industry's interconnected supply chains mean that parts often cross borders multiple times before being assembled into complete vehicles. As a result, imposing significant tariffs could add up to US$3,000 to the average price of a car in the US, according to Emmanuel Rosner, a senior research analyst at Wolfe Research.

The prospect of such price increases could spark a backlash from American consumers already grappling with rising living costs.

Scepticism about tariff implementation

Despite the seriousness of these tariff threats, some analysts are sceptical about their likelihood of being enacted.

Goldman Sachs, for instance, has informed its clients that the chances of a 25% Trump tariff on Mexico and Canada are relatively low—around one in five.

The scepticism is partly based on Trump's previous unfulfilled tariff threats, such as a similar proposal in 2019 regarding Mexico. However, uncertainty surrounding the issue continues to make global markets uneasy.

The European Automobile Manufacturers Association (ACEA) has strongly opposed The Trump Tariff proposals, warning of the potential negative consequences for the European and North American automotive industries. 

Ola Källenius, President of ACEA, previously called for a "grand bargain" between the European Union and the US to avoid a trade war that could severely disrupt car manufacturing and exports. The proactive stance highlights the seriousness with which European automakers are taking the threat of tariffs and their potential to disrupt operations.

A broader economic impact

Beyond production costs, the tariffs could have broader implications for Trump's other campaign promises, particularly his goal to lower gasoline prices below US$2 per gallon.

Analysts suggest imposing tariffs on Canadian oil, which constitutes a significant portion of US oil imports, could result in higher gasoline prices and other petroleum-related products, complicating the situation.

As the situation develops, business leaders and investors are attempting to navigate the growing uncertainty surrounding these potential tariffs.

Jim Boock, Chief Investment Officer at Bleakley Financial Group, describes the tariff threat as creating a "giant global overhead", making it difficult for businesses to plan effectively. Companies are now facing the possibility of unpredictable tariff changes that could affect their bottom lines and future growth prospects.

High stakes for European automakers

While it remains uncertain as to whether President Trump's tariff threats will come to fruition, European automakers are undeniably among the most exposed to potential fallout.

Companies like Stellantis, Volkswagen Group and Volvo face significant risks that could force them to reconsider their manufacturing strategies and alter their North American market operations. Over the coming months, monitoring whether these tariff threats materialise and how the automotive industry responds to this new and volatile trade environment will be critical.

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