The newly announced trade deal between the U.S. and the European Union contains what looks like a dramatic rebalancing of the trade relationship for autos. The EU's automakers will pay a 15% import tax on what they send to America, while the U.S. automakers will pay nothing to the EU (Canada's Globe and Mail has a good breakdown). What a deal! Unless you consider that the U.S. currently exports a relatively small number of vehicles to Europe, and there isn't much reason to increase the numbers.
Here's
the data: in 2024, the EU sent 750,000 vehicles to the U.S., while the U.S. sent 165,000 vehicles to Europe. Those totals have fluctuated over the past few years, but the relative imbalance has remained steady. This apparently enrages President Trump and his trade negotiators, who seem to think that the EU dropping its prior 10% tariff will open the floodgates for Fords and Chevys. That's not going to happen, of course, because American-made cars are made for Americans, not Europeans.
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Build Where You Sell
Automakers generally want to build vehicles where they sell them, for three main reasons. First, they can manufacture the models that a particular market wants. BMW makes SUVs at its factory in South Carolina (and is the U.S.' top exporter by value thanks to that plant, too). Second, local production avoids issues with exchange rates and tariffs, although decades of free-trade had lowered U.S. tariffs to negligible levels. And third, local production makes regulatory approval easier to manage. Former Aston Martin CEO Andy Palmer has my favorite quote on the topic, via the BBC: "You don't want to ship cars around the world. They're big boxes of expensive air."
So it's pointless to expect U.S. carmakers to suddenly start manufacturing more vehicles in the U.S. to export to the EU. They don't make the small, fuel-efficient cars that Europeans want, and even if they did, they'd choose to make them in Europe.
It's also worth pointing out that both GM and Ford have been retreating from Europe. GM sold its Opel/Vauxhall division to the PSA Group (now part of Stellantis) in 2017, exiting the market after decades of struggles with profitability. Ford has phased out of the passenger car business in Europe, preferring to concentrate on commercial vans and crossovers. A 10% tariff being dropped to zilch isn't going to suddenly incentivize U.S. automakers to build a bunch of subcompacts, nor is it going to liberate Europe's previously deprived buyers of large SUVs and pickups.
The U.S. Is An Automotive Island
For roughly two decades, the U.S. auto industry, including the so-called foreign transplants that operate factories here, has reorganized itself to satisfy American buyers and focus on profits. That means a market defined by SUVs and pickups, which in their larger versions post the industry's best margins. Yes, the Japanese and South Koreans still sell smaller sedans, but for the most part the U.S. has become an automotive island, albeit a big one. The Escalades and Navigators roam here, not in the streets of Paris and Berlin.
Due to the Trump trade deal, Europe's automakers will face a 15-percent tariff on exports to the U.S., and that might encourage some moderate upticks in local manufacturing of Audis and Mercedes. But the models that Europe exports to the U.S. are typically sedans, and that's because the Europeans don't want to abandon the segment and need to maintain capacity at their EU factories, which also export to other countries.
The upshot here is that made-in-Europe cars sold in the U.S. will probably cost more, while U.S. auto exports to the EU will remain at about the same levels they always have. U.S. buyers who might have wanted a German-made BMW 5 Series sedan could perhaps, maybe, I don't know, think about a Cadillac. But more likely they'll go for a made-in-SC X5 SUV. You could say what Trump has achieved is a deal, but to me it looks a lot more like a more expensive restatement of the status quo.
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