Another US Tariff Shock for Germany
The pain for Germany's auto makers is acute and now it's about to get worse
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In yesterday’s post, I showed two charts that illustrate what a difficult position German auto makers are in. The first showed how the US is shrinking as an export market for German auto makers, a shift that’s occurred since the start of President Trump’s second term and is therefore likely due to US tariffs. The second showed the massive rise in China’s car exports, which in 2022 were comparable to Germany’s but are now twice as large. Germany is caught in a pincer movement and needs to tread carefully. I was dismayed to see German Chancellor Merz’s recent comments that the US is being “humiliated” by Iran. Those comments - on April 27 (today a week ago) - may or may not have played a role in the President’s announcement at the end of last week that tariffs on EU cars will be raised further. But I can’t imagine they helped Germany’s standing, which was already battered after Germany’s Defense Minister in March rejected any kind of military help in reopening the Strait of Hormuz by saying: “This is not our war.” Such comments have a price and that’s now coming due.
The chart above expands what I showed yesterday to additional countries. It shows vehicle exports to the US in percent of total vehicle exports for Sweden (orange), Italy (purple), Germany (blue), South Korea (green), Japan (gray) and China (pink). The idea is to see where the fall in exports to the US is especially pronounced. If you compare early 2026 to the equilibrium before President Trump took office, Germany certainly stands out in a negative way. Italy and Japan do too, while South Korea and Sweden have fared better.
The chart above shows the same data but compares the average for 2024, i.e. before the start of the second Trump administration, with the latest available data for 2026. For Germany, Italy and Sweden this is only January, while for China, Japan and South Korea full data for Q1 2026 are available. There’s a drop across the board in exports to the US, but for Germany and Italy - factoring in that they’re already struggling to sell in the US - the fall is more severe. EU countries need to pick their battles. They’ve been doing that quite poorly in my opinion.
I think Metz is doing the least worst option. Let's consider an alternative - he sends the German navy to help reopen straits of hormuz. The German navy is a much smaller force than the USN (65 vessels vs ~200 operational vessels) and it has commitments in the baltic and the med. It will have much the same problems operating in the Straits as the USN - attacks from cheap drones. We have seen - every European navy will have seen - how effective cheap Ukrainian drones have been against the Russian Black Sea fleet. Its one advantage over the USN is it has maybe 12 vessels for the anti-mine role (vs 4 in the USN). However, minesweeping under fire is unlikely to work out.
There are other factors that will give Metz and team pause:
- German ships would serve under US command, but the USA seems to have gone to war with no real plan beyond bomb bomb bomb.
- The USA seems very willing to publicly commit war crimes.
- Germany and other European countries sent troops to Afghanistan. The current American administration has loudly rejected that contribution. why contribute again? In retrospect, the choice of Germany not to help in Iraq seems wise.
- Trump has prioritised the USA. would he really lower tariffs? would he stick to any deal made?
- Trump has failed to bring the Ukrainian war to a close, mostly because his team is incompetent.
- Trump is a much disliked figure in Europe, even among the right wing.
What was Merz thinking 🤔????? Even if he believes it. Why say it ????? Germany was an export economy helped by the strong German franc taking advantage of being embedded in the Euro 💶 with the USA 🇺🇸 and China 🇨🇳 as key markets. They can’t compete on price with China and have pissed of Trump. Not good