Emerging into the springtime sun from gate 17 at Volkswagen’s main factory in Wolfsburg at the end of his shift, Carsten, 63, pulled heavily on a cigarette and shook his head when asked about Donald Trump’s US tariff policies.
“It’s just another nail in the coffin for the German car industry,” the assembly line worker said on Thursday. He cited managers’ plans to slash jobs and close factories earlier this year, and a decade before that the “dieselgate” scandal –costly financially and reputationally – when Germany’s largest carmaker was found to have falsified CO2 emissions tests.
Now that the US has put a punishing 25% tariff on car imports (until now it was 2.5%) “we’re swimming in shit”, he said, giving a husky chuckle. “You have to laugh or you’d not survive,” he added. He declined to give his full name, but said he had been at the company for more than 15 years, adding he was “glad to be going into retirement” in two years’ time “so I don’t have to watch the carnage from the factory floor”.
Ahmed, talking as he dashed to the nearby station to catch the train home to pick up his children after finishing the early shift on the VW Golf assembly line, said he was proud of his job, but feared for the future. “The mood inside is not good,” he said. “We already felt bamboozled by our bosses after all the mistakes they’ve made. Now even bigger arseholes are deciding our future.”
Stephan, towards the end of his first week working in electrical infrastructure at the plant, said he was sure that “initially this is going to be very bad for the German car industry, and for Germany in general, but long term it might serve us well, to learn to be more independent from the US. We just have to hope that short term, our new government quickly starts to set us on the right course.”
Germany’s new government, under the probable leadership of the conservative former banker Friedrich Merz, which is still being painstakingly negotiated behind the scenes following a February election, suddenly faces a new and almighty challenge, on top of the already towering problem of how to steer Europe’s largest economy out of its deep economic woes.
Demand for German goods in the US is high, in particular cars – BMW, Mercedes, VW and Porsche – as well as machinery, chemicals, pharmaceuticals and plenty of luxury goods from Montblanc pens to Hugo Boss suits. As a result, Germany’s trade deficit with the US is larger than most other countries’ and the impact of the tariffs will hit its economy particularly hard.
“Trump’s economic war is in full flow and Germany is stuck smack bang in the middle of it,” ran a headline in the tabloid Bild this week.
The leading economic institute IW predicted in a study published on Thursday that the loss to Germany’s economy would amount to an estimated €200bn (£170bn) stretched over the four years of a Trump tenure, or a drop of 1.5% in GDP.
The study’s authors, Jürgen Matthes and Samina Sultan called it “an economic catastrophe for Germany”.
Annual sales of VW vehicles in the US amounted to almost 380,000 last year, or 8% of its total global sales, consisting mainly of its higher-end vehicles. According to the Association of German Car Makers (VDA), overall exports of German vehicles and parts reached a total value of almost €37bn.
VW said this week it would not take the punishment lying down. It said it had provisionally halted rail shipments of vehicles from its factory in Puebla, Mexico into the US, and had also put a hold on the transport of its US-bound cars via ship at the western German seaport of Emden. In a memo to its North American retailers, it said it would introduce an “import fee” on affected vehicles. This was “to make sure on the label it’s clear to our customers it’s not us who’s fleecing them, but their own government”, a US car dealer told German media on condition of anonymity.
As to Trump’s wish that manufacturers will be forced to move their operations to the US, the large German carmakers like VW, Mercedes, and BMW have long since done so, producing 900,000 cars on US soil last year, according to the VDA. Major car part suppliers, including Continental and Bosch, have done the same. In total, at 2,110 locations in the US the German car industry employs about 138,000 people.
But this by no means makes them immune to the tariffs because plenty of parts, to which tariffs will also apply, have to be imported.
As a result, cars are expected to rise in price on average between $5,000 (£3,840) and $10,000 dollars, and by as much as $50,000 in the luxury sector, experts predict. While car sales soared ahead of the tariff announcement as buyers sought to beat the price rise, already a sales war between foreign and domestic manufacturers is making itself felt, with the US carmaker Ford reportedly planning to offer customers its cutdown prices hitherto reserved for its employees, under the campaign banner: “From America for America.”
Hildegard Müller, president of the VDA said the punitive taxes turned existing trade policy on its head. “This marks the departure of the US from the rules-based global trading order … it is not America First, this is America alone,” she said.
Ferdinand Dudenhöffer, founder of the Center for Automotive Research (CAR), known as Germany’s “car pope” owing to his expertise in the industry, told German media that German car manufacturers and suppliers would be “extremely damaged and heavily punished”.
“If this ends up being ongoing, German car manufacturers will increasingly move their production to the USA, leading to a further loss of jobs in Germany,” he predicted. “By forcing the companies into making losses and sucking the jobs away, economically speaking Trump is an even worse enemy for us than [Vladimir] Putin.”
On Friday, the leading economist Marcel Fratzscher said Germany’s best response to the tariff turmoil was to “fortify itself” from within, urging the new government to use the opportunity of crisis to carry out much-needed reforms and, with the EU, to hit the US where it hurt most by imposing a reciprocal tax on digital companies.
“The future isn’t being made in the US; our own future is being made here in the country. And I would like the coalition partners [of the future government] to have more courage,” he said, calling for a radical change of course in economic policy.
