German auto sector could experience some decline if Trump announces tariffs

Berlin

Germany’s automotive sector could drop as much as 12% over “three bad trading days,” if the US President Donald Trump imposes tariffs on European automakers, one analyst informed CNBC.

Trump has until Friday midnight (Washington time) to decide if he should impose duties on auto imports. This would possibly damage Germany, the EU’s traditional growth engine, since that it is one of the largest direct car exporters to the US.

The German stock market could drop as much as 6% and its automobile and components sector, particularly, could see losses of about 12%, according to Christoph Schon, executive director of Axioma. He informed CNBC over the phone that the losses could occur over a period of three trading days, or over five to 10 sessions.

Germany’s DAX increased by about 14% so far this year, while the total European auto sector is greater by about 11% this year. Volkswagen and Daimler also increased by around 7% and 15%, respectively.

In 2018, Trump threatened to impose 20% tariffs on European cars, saying that there’s a trade imbalance threatening the U.S.’s national security. The EU is the largest exporter of automobiles in the world, while the United States is the largest importer.

“Germany is the tail on the U.S.-China trade war dog and at the end of the day, 47% of GDP from Germany is exports — most of that going to those two trading partners. If they blow up in a trade war, Germany is probably the place that gets hits worse, ” stated Mark Phelps, chief investment officer at AllianceBernstein.

The EU has made every attempt to make sure these tariffs are prevented. European Commission President Jean-Claude Juncker visited the U.S. last year and agreed with Trump to work together to bring present tariffs toward zero on non-auto industrial goods; to purchase more liquefied natural gas from the U.S. and to discover ways to bring their standards closer together.

However, both sides are yet to start a discussion on a trade deal. The continued escalation in tensions between China and the U.S. has created more jitters in Europe, with experts expecting Trump to keep a strong stance against the EU as well.

“If indeed we get U.S. car tariffs on imports from the euro zone — not just their declaration, you could forget our economic forecasts entirely. No chance of a sustained pick-up in activity across the second half as we expect,” Florian Hense, European economist at Berenberg bank, informed CNBC through email.

The euro zone economy has lost steam in the recent times, with weaker manufacturing and growth data. The European Central Bank (ECB) even had to slash its growth projections for the year back in March. Development in the EU is very sensitive to external shocks, because of its export-driven economy.

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