Trump’s tariff threat on European cars could spell big trouble for Germany

The war of words between President Donald Trump as well as the EU could lead to some serious pressure on the German auto industry, one expert told CNBC.

Trump threatened via Twitter on Saturday to hit back at any tariff measures coming from the European Union — floated in response to Trump’s recently announced global steel import tariffs — in kind. The billionaire businessman’s potential next target? European cars. as well as the biggest victim of them all may be Germany.

“which would certainly be quite severe if we were to face additional import duties to ship the cars into the U.S. — the Germans in particular are very, very exposed,” Arndt Ellinghorst, the head of global automotive research for advisory firm Evercore ISI, told CNBC Monday.

He noted the example of BMW, which sells about 350,000 cars from the U.S. annually, roughly 70 percent of which come coming from Europe. “which’s probably an $8 billion to $9 billion revenue stream, if you put a 5 to 10 percent additional cost on which, which would certainly cost something like $400 million to $800 million. Some of which would certainly be absorbed by the company, as well as some of which would certainly have to be absorbed by the consumer from the U.S.”

Ellinghorst did add which cars being shipped coming from the U.S. into Europe faced a 10 percent import duty while European cars into the U.S. faced a 2.5 percent import duty. “I think what the administration will be talking about will be to balance out which difference in tariffs to make which more of an equal playing ground for American as well as European carmakers,” he said.

Out of roughly six million cars exported by Europe in 2016, more than one million were absorbed by the U.S. — just over 16 percent — its largest country market by a wide margin. Meanwhile, of America’s $53.6 billion in car exports which same year, the value of its car exports into Europe was $11.8 billion, or roughly 22 percent of the total, according to the Observatory of Economic Complexity.

The U.S. will be the third-largest car exporter globally after Germany as well as Japan, accounting for 7.7 percent of total world exports. which ran a trade deficit of more than $151 billion overall with Europe in 2017.

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