President Donald Trump has repeatedly threatened to impose higher tariffs on cars and light trucks imported into the United States from abroad. And every so often, he has backed away, stating just recently that there would be no "product-specific" tariffs.

Now, the US president has again changed his mind, announcing on Wednesday (March 27)

that a 25% import levy on foreign-made cars will eventually take effect on April 3. Additionally, Trump didn't rule out the possibility of imposing tariffs on other industries as well, such as the pharmaceutical sector.

Donald Trump believes that import tariffs for foreign goods will generate an additional $100 billion (€92.7 billion) in revenue for the US government.

But Paul Ashworth, chief North America economist at Capital Economics in Toronto, Canada, has crunched the numbers and reached a different conclusion. He estimates the figure will be closer to "just under $50 billion."

In the short term, Ashworth warns, the tariffs will drive up prices. If US manufacturers also decide to raise their prices, this could make "new vehicles something of a luxury item," he wrote in a note to investors. Consumers may opt to "hold onto their used vehicles for much longer, boosting prices of used vehicles too, plus demand for auto repair shops and parts."

Premium carmakers set to suffer most

The new US levies are particularly bad news for Germany's struggling carmakers. The US, along with China, is the most important market for Volkswagen, Mercedes, BMW and Porsche, for whom falling overseas sales will likely deal a severe blow.

Volkswagen for instance builds only one out of five cars to be sold in America in the US and imports 80% of their sales.

Ford is the exact opposite: the Detroit car-maker only have a 21-percent-share of imported cars, almost 80% is "home made".

According to calculations by news agency Bloomberg, Trump's additional tariffs could wipe out about a quarter of Porsche's and Mercedes' projected operating profits for 2026. To offset the impact, manufacturers may have to raise prices or shift more production to the US.

Luxury sports car maker Porsche, already struggling with declining sales in China, could be particularly affected. Over the past 15 years, the company, which based in the German city of Stuttgar, has seen steady growth in the US. 

The US has now even surpassed China as Porsche's most important export destination. Adding to the challenge, Porsche dealers in the US are entirely reliant on imports, as the company has no manufacturing plant there.

In 2024, the US imported nearly $25 billion worth of cars from Germany, according to figures from the US Department of Commerce's International Trade Administration.

Now, these tariffs threaten to significantly erode the profits of Volkswagen and BMW as well as other major German automakers in the lucrative US market.

Besides carmakers, key suppliers such as Bosch and Continental could also feel the squeeze.

Auto stocks tank amid fears of intensifying trade war

Stock markets responded promptly on Thursday (March 27) morning. Porsche shares dropped by up to 5% at the German stock exchange in Frankfurt, while Mercedes shares tanked 5.2% and BMW's stock declined by 4.9%.

Volkswagen AG, which owns Audi and Lamborghini, lost up to 4.3%, and even UK carmaker Aston Martin Lagonda Global Holdings Plc in London plunged 8.9%.

In the opening minutes of trading, Germany's benchmark DAX index fell 1.54% to 22,488.09 points, and the so-called MDAX index, which tracks mid-sized companies, lost 1.35%. On a European scale, the leading eurozone index, EuroStoxx 50, shed 1.3%.

Auto industry on high alert

Hildegard Müller, president of the German Association of the Automotive Industry (VDA), reacted strongly to Trump's announcement, saying in a statement that the tariffs "send a disastrous signal for free and rules-based trade."

She warned that they would "place a significant burden on both companies and the automotive industry's closely interwoven global supply chains," with negative consequences for consumers, not only in Germany but "especially in the US."

Dirk Jandura, president of the German Wholesale, Foreign Trade, and Services Association (BGA), told news agency Reuters that the BGA would be revising its already pessimistic export expectations downward.

"We will now make a significant downward adjustment," he said, adding that Trump "unilaterally started this trade war based on false claims."

Jandura also called on the European Union to respond decisively. "The EU should also address the dominant and overwhelming market power of American digital corporations in Europe," he demanded.

Monika Schnitzer, chair of Germany's Council of Economic Experts also sees the EU under pressure to act. "The European Commission should, of course, enter negotiations with the US government. But not by offering concessions, rather, by threatening countermeasures, including retaliatory tariffs," the member of the government's advisory panel said.

How will Trump's auto tariffs affect the broader economy?

Schnitzer believes though that in Germany the new tariffs will primarily impact automakers and their suppliers rather than the broader economy.

"The overall economic impact will be limited, but the affected industries and regions will feel the effects much more strongly. One thing is certain: the level of uncertainty will rise dramatically, and that alone will harm the economy," she noted.

For now, she suggests a wait-and-see approach because, in her opinion, it "remains uncertain whether the announced tariffs will actually be imposed in this form and at this level." Negotiations, she added, are almost certain to take place.

Moritz Schularick, president of the Kiel Institute for the World Economy (IfW), also sees no reason for immediate panic, sharing the belief that the economic effects of the tariffs will be "manageable for the broader economy."

"As Europeans, we should align ourselves with other countries that want to maintain open markets and jointly advocate for a rules-based global economy," he said, and proposed the joint use of "retaliatory measures."

This article was originally written in German.