Trump’s New Auto Tariff Threat Could Cost Germany Nearly $18bn In Output, Deepening Its Industrial Slowdown, Kiel Institute Says

U.S. President Donald Trump’s decision to raise tariffs on European cars and trucks to 25% is threatening to intensify pressure on Germany’s already fragile economy, with new estimates suggesting the move could erase nearly 15 billion euros (about $18bn) in German industrial output in the near term and far more over time.

According to analysis by the Kiel Institute for the World Economy, the tariff escalation could inflict serious damage on Europe’s largest manufacturing economy, where the automotive sector remains a cornerstone of exports, employment, and industrial investment.

“The effects would be substantial,” IfW President Moritz Schularick said, warning that the long-term hit to German output could eventually climb toward 30 billion euros if the measures remain in place and trigger sustained disruption across supply chains.

The warning underscores how vulnerable Germany remains to renewed trade tensions at a time when its industrial model is already under strain from weak Chinese demand, high energy costs, rising competition from Chinese electric vehicle makers, and the economic fallout from the ongoing Middle East conflict.

Trump said Friday that tariffs on European automobiles would rise to 25% next week from the previously agreed 15%, accusing the European Union of failing to comply with the terms of an earlier trade arrangement with Washington. The announcement rattled investors and renewed fears that global trade fragmentation is entering a more aggressive phase as geopolitical rivalries increasingly shape industrial policy.

Germany is especially exposed because its economy depends heavily on exports of premium vehicles and automotive components to the United States. Carmakers such as Volkswagen, Mercedes-Benz, and BMW generate substantial revenue from the American market, while thousands of smaller suppliers across Germany’s industrial regions are integrated into transatlantic manufacturing chains.

Economists say the danger extends beyond direct vehicle exports. Higher tariffs could weaken investment, delay factory expansion plans, and accelerate pressure on already strained European supply networks. Germany’s industrial sector has been battling stagnant production, subdued consumer demand, and shrinking competitiveness after years of elevated energy costs following the collapse of cheap Russian gas supplies.

The IfW currently forecasts German economic growth of just 0.8% this year, meaning even a relatively modest external shock could push Europe’s largest economy closer to stagnation.

“If Germany’s car exports weaken further, the consequences will spread far beyond automakers,” analysts said, noting the sector supports steel producers, chemical firms, logistics providers, software developers, and machinery manufacturers throughout the country.

The impact would not be limited to Germany.

The institute said countries including Italy, Slovakia, and Sweden would also face significant economic losses because of their large automotive sectors and integration into European manufacturing networks.

Slovakia is considered particularly vulnerable because automobile production accounts for an unusually large share of its economy.

The tariff threat also comes at a difficult moment for Europe’s electric vehicle ambitions. European manufacturers are already losing market share to Chinese rivals such as BYD and other low-cost EV producers that have rapidly expanded into global markets with cheaper, technology-heavy vehicles. Also, American industrial policy under Trump has become increasingly protectionist, prioritizing domestic manufacturing and seeking to pressure allies into reshoring production to the United States.

Some analysts believe the tariff escalation could ultimately force European carmakers to accelerate investments in North American manufacturing capacity to avoid punitive duties.

Yet uncertainty remains over whether the tariffs will actually take effect.

Jens Suedekum, chief adviser to Germany’s finance minister, urged caution, noting Trump has a history of issuing aggressive tariff threats before suspending or revising them.

“The EU should simply wait and see for now,” Suedekum told Reuters, adding that it remained unclear whether there was a legal basis for the move or whether Washington could fully justify claims that Europe violated the existing agreement.

“It all seems quite impulsive,” he said.

That unpredictability itself has become part of the economic problem. Business groups across Europe increasingly warn that volatile U.S. trade policy is making long-term planning more difficult for exporters and manufacturers already grappling with geopolitical instability and rising financing costs.

The development also risks reopening broader transatlantic tensions just as Europe and the United States are attempting to coordinate on issues ranging from China’s industrial expansion to supply-chain security and energy markets disrupted by the Iran war.

For Germany, the stakes are particularly high because the country’s postwar economic model has long relied on stable global trade flows, export-driven manufacturing, and open access to major consumer markets. A prolonged tariff confrontation with Washington would strike directly at the heart of that model at a time when Berlin is already struggling to redefine its industrial future.