US plans 25% tariffs on EU cars despite recent trade agreement

The United States is preparing to raise tariffs on European Union vehicles to 25 percent, a decision that threatens to undo an August agreement between Washington and Brussels. White House officials justify this escalation by citing the EU's failure to adhere to a trade deal that previously capped rates at 15 percent. US Trade Representative Jamieson Greer confirmed to CNBC on Monday that the administration is proceeding with this action.

Legal constraints complicate the situation. Earlier this year, the US Supreme Court blocked President Donald Trump from using the International Emergency Economic Powers Act (IEEPA) to impose global tariffs. However, Trump successfully applied Section 232 last year to levy 25 percent duties on automotive imports, claiming national security risks. The August deal aimed to reduce those levies, but European officials reject the claim that the bloc violated the accord. They argue that Trump is using tariff threats as a negotiating tactic, particularly after several European nations refused to deploy militaries to assist the US Navy in the Strait of Hormuz.

Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, noted that while Trump retains the legal authority to act, the specific justification remains unclear. She explained that the US needed EU-level implementation of the agreement, which caused delays. With the IEEPA rulings limiting the president's leverage, Ziemba suggested the US threat lacks its former potency.

The fallout would disproportionately affect German automakers like BMW, Mercedes-Benz, and Volkswagen, which maintain substantial manufacturing footprints in the United States. This economic pressure coincides with geopolitical friction; the White House announced plans to withdraw 5,000 troops from Germany after Chancellor Friedrich Merz criticized US negotiations with Iran as humiliating.

European car exports drive significant commerce between the two regions. The European Automobile Manufacturers' Association reports that car trade accounts for 8 percent of total EU-US business, with the United States serving as the primary destination for 29 percent of all vehicles exported from the EU. Gregory Shaffer, a professor of international law at Georgetown University, warned that Germany faces the brunt of these measures because its economy relies heavily on the automotive sector. He observed that Europe has hesitated to push back against Trump's tariffs, largely due to security concerns.

The tariff hike would specifically target higher-end and luxury vehicles. Ziemba explained that finished luxury cars are primarily imported, whereas European manufacturers often assemble mid-level vehicles within the US under USMCA incentives. Germany's Volkswagen exemplifies the mixed impact; while it operates a major Chattanooga, Tennessee, plant producing the Atlas, Atlas Cross Sport, and ID.4, its luxury models remain vulnerable to the new 25 percent levy.

Volkswagen builds its Golf models in Wolfsburg, Germany.

Automakers remain uncertain about their next moves.

A Volkswagen spokesperson told Al Jazeera they are reviewing recent tariff actions and awaiting further details.

Mercedes-Benz keeps a manufacturing presence in the United States, producing many SUVs at its Alabama plant.

However, several sedans, including the S-Class, are still built in Germany.

BMW assembles its X series SUVs at a facility in Spartanburg, South Carolina.

Other models like the 3 Series and 4 Series are primarily produced in Germany.

BMW did not reply to Al Jazeera's request for comment.

Mercedes directed questions to the ACEA, but the association offered no response.

Stellantis also faces some risk.

The company makes Jeep, Ram, and Chrysler vehicles in the US.

It produces Fiat and Peugeot brands in Europe.

Fiat has limited US sales, while Peugeot sells none here.

Some brands face higher tariff exposure, especially luxury models.

Porsche and Audi, owned by Volkswagen, do not manufacture cars in the US.

After the United Kingdom, the US remains the largest market for EU car exports.

The ACEA reports that 25 percent of US global car imports by value come from the EU.

This pressure forces manufacturers to rethink their strategies.

In March, Automotive News noted Porsche might expand US production to offset tariff impacts.

Ultra-luxury brands like Ferrari and Lamborghini face even greater exposure.

Both brands build all their vehicles in Italy.

Tariffs also affect companies making parts in the US.

These include manufacturers of clutches, emissions systems, and engine components.

Kyle Peacock of Peacock Tariff Consulting explains the supply chain disruption.

He says overseas plants have slowed orders for US materials.

They anticipate volume mismatches due to the added tariffs.

Peacock notes one client makes clutches for Stellantis and Volkswagen.

Those parts ship to Germany and the UK for production.

Sales have slowed because they do not plan to bring those goods into the US.

How will this affect consumers?

Trump's tariffs have raised average household taxes by $1,000, according to the Tax Foundation.

Since the Supreme Court ruling changed tariff rates, that cost is expected to drop to $700 per household this year.

Mid-range and high-end vehicles are predominantly affected.

The financial hit to consumers would be limited.

Peacock says these costs pass directly to buyers.

People purchasing these cars can absorb the tariff better than lower-income groups.

Corporations will not absorb these costs; they will pass them to consumers.

Politically, tariffs have weighed on consumers.

A Harris Poll conducted in March revealed that 72 percent of Americans believe tariffs negatively affect their daily lives. This sentiment was reinforced by a Pew Research Center survey in April, showing 63 percent of the public lacks confidence in President Trump's management of tariff policy.

Georgetown University's Shaffer warned that a tipping point may soon arrive. At that moment, Europe could retaliate against the United States. Such retaliation would specifically target exports originating from key swing states, aiming to politically harm Trump.

Peacock noted that hesitation exists among European automakers regarding transactions with American producers. Companies like Volkswagen have become more cautious about purchasing from US manufacturers. Many of these manufacturers are located in swing states such as Virginia and New Jersey.

The White House declined to comment on these developments after Al Jazeera requested a response.