President Donald Trump announced Wednesday that he would raise tariffs on European Union-made automobiles to 25% from the current 15%, accusing Brussels of failing to comply with terms of the bilateral trade agreement signed last July. The threat sent European automaker shares sharply lower while US-focused automakers rallied on reduced competition.
'The European Union has not lived up to its commitments under our deal,' Trump wrote on Truth Social early Wednesday. 'They promised to buy $50 billion more in American goods and they've bought $12 billion. The car tariff goes to 25% on June 1 unless they fix this immediately.' The current 15% tariff was established in the July 2025 US-EU trade agreement that avoided a full trade war.
European Automakers Under Pressure
Mercedes-Benz Group fell 4.2% in Frankfurt trading, BMW dropped 3.8%, Volkswagen declined 3.1%, and Porsche AG lost 4.5%. The potential tariff increase would hit Mercedes and BMW hardest, as they export approximately 330,000 and 280,000 vehicles annually from German factories to the US, respectively. Analysts estimate the tariff increase would add $4,000-$7,000 to the retail price of affected vehicles.
The EU Trade Commissioner responded that the threat was 'unacceptable and inconsistent with the spirit of our agreement,' warning that Brussels would consider 'proportionate countermeasures' including tariffs on US agricultural products, Boeing aircraft, and technology services. EU officials noted that European purchases of American LNG, soybeans, and defense equipment have increased substantially since the July agreement.
US Auto Sector Benefits
US automakers and domestic-production-focused companies rallied. Ford (F) gained 2.8%, General Motors (GM) rose 2.1%, and Tesla (TSLA