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Explained: Why Germany is vulnerable to US car tariffs

German automakers, already pounded by weak global growth and a costly shift to electric vehicles, stand to lose the most if US President Donald Trump makes good on fresh threats to slap crippling tariffs on European cars.

Explained: Why Germany is vulnerable to US car tariffs
A traffic jam in Munich in August. Photo: DPA

Here's a look at what's at stake.

Mammoth exports
 

The United States is the top destination for EU-built cars, accounting for 29 percent of the total value of all EU car exports in 2018.

In 2018, that amounted to 37 billion — with German exports accounting for almost half.

READ ALSO: 'The threat exists': Germany confirms possibility of higher European car tariffs from US

Giants Volkswagen, BMW and Mercedes-Benz parent Daimler exported 470,000 cars from Germany to the US in 2018, more than any other EU country.

“Germany is the biggest exporters of cars to the US,” Pictet economist Nadia Gharbi noted, well ahead of the United Kingdom, Italy and Slovakia.

Therefore, “Germany remains the most exposed European country to car tariffs.”

US exposure

Trump has repeatedly mooted tariffs of 25 percent on EU-built cars in his trade spat with the bloc, which has raged on and off for the past three years.

A drastic hike could potentially put high-end brands like VW subsidiaries Audi and Porsche beyond the means of many US drivers.

US demand for European cars “declines by around 1.5 to 3.0 percent when prices rise by one percent,” Pictet has calculated.

German manufacturers have already tried to cushion the potential blow by producing more at their huge US plants — where VW, BMW, Daimler and German car suppliers employ nearly 120,000 people.

“The relocation of automobile production to the US is already happening,” said Gabriel Felbermayr of the IfW economic institute, as German exports to the US are forecast to have fallen by around 10 percent in 2019.

“This is how companies are trying to protect themselves,” he added.

Over the long term, tariffs of 25 percent could halve the number of German cars shipped to the US, the Munich-based Ifo institute has predicted.


Cars in a Bremen port in northern Germany waiting to be exported. Photo: DPA

Ripple effect

The timing of the flare-up in trade tensions could scarcely be worse for German manufacturers.

The German auto industry employs 800,000 people in Europe's top economy and contributes around five percent to German gross domestic product (GDP).

But its multi-national supply chains and reliance on foreign markets have made the sector highly vulnerable to external upsets.

The US-China trade war, ongoing fallout from the diesel emissions cheating scandal and uncertainties surrounding Brexit have all taken a toll — pushing 2019 German car production to its lowest level in 22 years.

READ ALSO: Why has German car production hit a 22-year low?

At the same time as earnings are being squeezed, companies must invest billions in electric cars to comply with tough new EU pollution standards.

To lower costs, German carmakers and suppliers have announced 40,000 job cuts for the coming years — partly because electric engines are less complex to make than traditional combustion engines.

“The industry is very connected” to the rest of the German economy, said Felbermayr, meaning the knock-on effects of car tariffs would also impact other industries such as toolmakers and the chemical sector.

Rating agency Moody's has estimated that tariffs could prove a drag of around 0.2 percentage points on German GDP.

Foreign companies that supply parts used in German cars could likewise suffer, Felbermayr warned.

“Germany will be harder hit compared with other European countries, but because of the supply chain, everyone could end up in the same boat.”

READ ALSO: Protests as Tesla receives approval for factory purchase near Berlin

 

For members

WORKING IN GERMANY

Which Bavaria-based companies regularly hire English speakers?

Bavaria is no doubt a beautiful state with a strong economy, but can be a hard place for non-German speakers to integrate. The Local takes a look at job opportunities in Germany’s southeastern 'Free State.'

Which Bavaria-based companies regularly hire English speakers?

Munich ranks third in German cities with the highest total GDP, behind Berlin and Hamburg, but in terms of GDP per capita, it’s higher than both of them.

It also consistently ranks high, often highest, in terms of average household income.

As of 2023, nine of the 40 companies listed on DAX, Germany’s stock index, were based in Bavaria. Seven of those are based specifically in Munich.

While Frankfurt is commonly known to be Germany’s business capital, Munich can claim the title of Germany’s insurance capital, which is saying something, as Germany is home to some of the largest insurance firms in the world, like Allianz.

Beyond the state’s capital city, a number of international companies are based elsewhere in Bavaria, particularly in the Franken region, near Nuremberg.

Which companies actively hire English speakers?

Bavaria, and Munich in particular, is home to a number of companies at the forefront of international business. But the state is known for its traditional, sometimes conservative, culture, which affects its business culture as well.

Whereas companies embracing English as their primary business language are easy to find in Berlin, the practice is less common in the south. That said, there are some notable exceptions. 

Sportswear giants, Adidas and Puma, both have their headquarters near Nuremberg in Herzogenaurach, and regularly recruit English speaking international talent.

“As an international company, our teams reflect the rich diversity of our consumers and communities,” Jon Greenhalgh, Senior Manager Media Relations for Adidas told The Local. “Fostering a culture of inclusion where we value and leverage differences, ensures that we can authentically engage with our employees and truly connect with our consumers.”

He added that around 40 per cent of Adidas’ Germany-based employees are foreign nationals, from over 100 different countries.

Siemens and BMW rank among Bavaria’s top employers, and are also known to hire their fair share of foreigners.

“In Germany, we recently had around 2,000 open positions,” Konstanze Somborn told The Local on behalf of Siemens AG.

He added that Siemens operates in 190 countries. “That is why we value international teams very much…English as a common language is very usual.”

READ ALSO: ‘Which German companies want to hire foreigners?’

Similarly, BMW hires workers from a variety of backgrounds. 

“Every year, we hire lots of internationals and welcome them to the BMW Group,” Dr. Hans-Peter Ketterl, a press spokesman for BMW Group told The Local. 

But not all of these positions are available to non-German speakers.

Ketterl added that BMW’s working language is German in the country, even though, “English is an indispensable entry requirement as the second corporate language in many areas of the company.”

Check job boards and follow best practices

If it’s your first time applying for jobs in Germany, make sure to change your resume to the German format, even for English positions.

While Germany is home to its own job boards, like Xing, LinkedIn is probably the best place to start. In addition to searching for positions based in your preferred location, you can check relevant groups, like Munich Startups, to broaden your horizons.

The English Jobs in Germany website is also a good resource to start with. 

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