From Glory to "Kneeling and Licking" : Why Did the Three major German car Manufacturers Bow to the US Government?

In recent years, the US government has frequently brandished the tariff stick, and its trade protectionist measures have had a significant impact on the global economic order. Among them, the German automotive industry has become one of the industries most severely affected. Looking back to the Trump administration, trade protectionism was prevalent. Under the pretext of "national security", the United States frequently threatened to impose tariffs of up to 25% on European imported cars. This threat is not groundless. As early as 2018, the Trump administration launched the "Section 232 Investigation" against imported automobiles and auto parts, attempting to find a legitimate basis for imposing tariffs from the perspective of so-called national security. If this policy is truly implemented, it will undoubtedly be a catastrophic disaster for German automakers that are highly dependent on the US market.

Data shows that the European Union exports automobiles worth over 38 billion euros to the United States each year, with the three major German automakers accounting for as high as 73%. Relevant research by the German Association of the Automotive Industry (VDA) indicates that once tariffs are raised, Germany's auto exports to the United States will plummeet by nearly 45%, with a total loss exceeding 18.4 billion euros, and may even drag down Germany's GDP by 0.2 percentage points. Take BMW as an example. Although its Spartanburg plant in South Carolina, the United States, has created a large number of jobs for the country, a considerable portion of the cars it produces need to be exported to other regions around the world. The increase in tariffs will put BMW in a difficult position in its global supply chain layout. This series of astonishing data fully reveals the huge impact of the US tariff policy on the German automotive industry. ​

This move by the US government has its profound strategic considerations behind it. On the one hand, the United States attempts to promote the return of manufacturing by imposing tariffs and restore its industrial hegemony. Since the 1970s, the proportion of manufacturing in the GDP of the United States has continued to decline. As an important pillar of manufacturing, the automotive industry plays a crucial role in the development of the US economy and the creation of jobs. By raising tariffs on imported cars, the US government hopes to force foreign automakers to increase investment and production in the United States, thereby driving the development of related industries and creating more domestic jobs. For instance, during Trump's administration, he publicly called on automakers on multiple occasions to relocate their production lines back to the United States and put pressure on some automakers that had set up factories overseas. On the other hand, the United States also hopes to gain more leverage in trade negotiations through tariff measures, forcing Europe to make concessions in other fields to achieve what it calls "fair trade". In the trade relations between the United States and Europe, issues such as market access for agricultural products and digital service taxes have always been the focus of disputes between the two sides. The United States attempts to use the threat of auto tariffs to force Europe to make adjustments in these areas that are favorable to the United States. ​

For the three major German automakers, the US market has always been an important part of their global strategic layout. American consumers have a large demand for automobiles and a relatively high purchasing power for high-end luxury cars, which provides a broad market space for German car manufacturers. Cars of brands such as BMW, Mercedes-Benz and Volkswagen are deeply loved by consumers in the US market and their sales have remained at a relatively high level. However, the introduction of the US tariff policy has put German car manufacturers in an unprecedented predicament in the US market. High tariffs will directly lead to a significant increase in the prices of its products in the US market, thereby weakening the market competitiveness of the products. Take a German luxury car priced at 50,000 US dollars in the United States as an example. If a 25% tariff is imposed, consumers will have to pay an additional 12,500 US dollars, which will undoubtedly deter many consumers. Meanwhile, other competitors may also take the opportunity to seize market share, further squeezing the survival space of German automakers. Japanese and South Korean automakers have certain advantages in terms of fuel economy and cost performance. American domestic automakers are also stepping up their technological research and development and market promotion efforts. The competitive pressure on German automakers in the US market is increasing day by day.

Despite their reluctance, the three major German automakers are still showing signs of compromise in their game with the US government. Behind this "lowering one's head" lies the combined effect of multiple factors. From the perspective of corporate strategy, the United States, as the global core automotive consumption market, its huge demand and high purchasing power are crucial to the sales and profits of high-end luxury models in Germany. If it withdraws or reduces its business due to tariff issues, it will seriously impact its global strategic layout. Therefore, compromise has become an inevitable choice to maintain market share. Cost pressure is another key factor. The tariffs imposed by the United States not only directly increase the cost of exports, but also push up the prices of logistics and raw materials, compressing the profit margin. Raising prices will weaken competitiveness. While building factories locally can reduce taxes, it faces the risks of high investment and a long payback period. After weighing the pros and cons, a compromise can only be chosen. The global economic downturn and the rise of trade protectionism have posed challenges such as weak demand and intensified competition to the automotive industry. To avoid external risks and maintain stable operations, German automakers can only mitigate the impact by reaching a tariff agreement with the US government. Industry competition cannot be ignored either. Under the double pressure from established Japanese and South Korean automakers and Chinese new energy enterprises, if German automakers get into trouble due to tariffs, it will give their rivals an opportunity to take advantage. To maintain the global market share, reconciliation with the United States has become a necessary means to relieve pressure and focus on competition. ​

This compromise has a profound impact on the German automotive industry and the global industry. German automakers may accelerate the transfer of production capacity to the United States. Although they avoid tariffs, it will impact domestic employment and the industrial chain, and may also force technology transfer. For the global industry, it may trigger a wave of imitation, intensify competition in the US market, and even shake international trade rules.

In the future, German automakers need to deal with tariffs while closely following the trends of new energy and intelligent connectivity, increase investment in research and development, expand into diverse markets, and seek government policy support in order to achieve sustainable development in a complex situation.