EU and U.S. Automakers Suffer Big Losses in New Tariff Deal

Can both parties end up losing in a trade conflict?

It's an important question to raise on Monday following President Donald Trump's announcement that the U.S. has finalized a trade agreement with the European Union.

The positive development is that following six months of ambiguity, European automobile producers now clearly understand their financial obligations going forward, although the unpredictable head of the U.S. may still alter the conditions of the deal at any moment.

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Additionally, the 15% tax rate marks a notable decrease compared to the 27.5% duty on automobiles and car components that German vehicle manufacturers have been charged for several months.

However, on the other hand, the 15% tax is six times the usual rate that our former strong economic partner previously paid.

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"Even a 15% tax rate would cause significant adverse impacts on Germany's export-focused industries," stated Wolfgang Niedermark, a representative from Germany's BDI federation industrial group, as reported. The Guardian .

The German Automobile Manufacturers' Association states that although the agreement represents a favorable outcome (as President Trump had previously proposed 30% taxes), the 15% duty remains an obstacle.

"It is also evident that the U.S. tariff of 15%, which applies even to auto products, will result in billions of dollars in annual costs for the German automobile sector and place a significant strain on it," said Hildegard Müller, president of the VDA.

On Monday, the German car manufacturer Audi, part of Volkswagen's portfolio, ( VLKAY ) Luxury arms, outlined the expenses of the tariffs up to now and discussed how it will appear after the tariff agreement.

Audi suffered huge financial losses due to tariffs, and further significant losses may still be ahead.

On Monday, Audi reduced its annual forecast Audi updated its yearly projection downward Audi revised down its full-year outlook Audi decreased its overall year-end expectations Audi cut back its projected performance for the entire year following reports that it incurred a loss of $1.5 billion because of tariff costs during the first six months of the year.

Currently, the firm anticipates annual revenue ranging from 65 billion euros to 70 billion euros ($76 billion to $82 billion), with gross profit margins falling between 5% and 7%, which represents a shift from its earlier projected margin bracket of 7% to 9%.

Although Audi experienced a 6% drop in sales during the first half, it achieved revenue of 32.6 billion euros ($37.9 billion), representing a 5.3% rise compared to the previous year.

"The circumstances remain highly difficult. Along with significant competitive challenges, the sharply rising U.S. import duties and costs associated with Audi's restructuring efforts have affected financial results during the first half of the year," stated Audi Chief Financial Officer Jürgen Rittersberger.

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Audi sold only 99,000 cars in North America during the first half (not including Mexico), marking a 9% drop compared to the previous year. The company explained that this decrease was caused by tough financial circumstances and the postponed effects of the new model strategy in this market area.

In total, Audi delivered 783,531 vehicles during the first half, representing a decrease from 832,957 units recorded last year.

American automobile producers are also suffering significant losses due to the most recent European Union trade agreement.

Although the tariffs have caused significant difficulties for European manufacturers, U.S. builders were expected to gain an advantage.

Chief executives of all three major American automakers (Ford, General Motors, and Stellantis) commended the tariffs for "leveling the competitive landscape," as GM's Mary Barra stated.

However, as these responsibilities are decreasing, so too are the safeguards that American automobile manufacturers have been urging for.

In May, when it seemed the U.S. was close to reaching a trade agreement with the UK that would eliminate their tariffs, the American Automotive Policy Committee expressed worries Council of American Auto Policy voiced apprehensions Concerns were highlighted by the American Vehicle Policy Group The American Motor Industry Advocacy Board pointed out issues Issues were brought up by the U.S. Automobile Regulation Coalition .

The U.S. auto sector is closely linked with Canada and Mexico, but this level of integration does not apply between the U.S. and the UK. "We're upset that the administration chose the UK over our North American allies," said AAPC President Matt Blunt.

With this agreement, importing a UK car that has minimal U.S. components will now cost less than purchasing a USMCA-compliant vehicle from Mexico or Canada that contains about 50% American parts. This situation negatively impacts American automobile manufacturers, their suppliers, and automotive employees.

The top three companies currently face a comparable issue with European rivals, since their 15% tariffs are much lower than the 25% tariffs that American producers must pay to bring their vehicles from their Canadian and Mexican facilities.

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