Impact of Taxation: Across Automotive and Food Industry, Sector Analysis Under Trump Administration
In a move that could reshape transatlantic trade relations, the United States has announced new tariffs on European products, effective from August 1st. These tariffs, reaching as high as 30%, are particularly concerning for sectors such as pharmaceuticals, automotive, and cosmetics.
The European Union, fearing systemic repercussions, is preparing countermeasures in response. L'Oréal, a major player in the cosmetics industry, is considering boosting local production in response to the tariffs but does not rule out price increases for consumers to cope with the new tax burden.
The potential impacts of these tariffs are far-reaching. Higher tariffs increase import costs, forcing European exporters to choose between raising prices in the US market—potentially reducing competitiveness and market share—or absorbing costs that reduce profit margins.
Raising tariffs from about 1.2% to levels as high as 15-30% on EU goods is projected to reduce the EU’s GDP by around 0.5%, reflecting the broader negative economic effect of restricted trade and decreased export earnings.
Sector-specific risks are also a concern. In the pharmaceutical industry, tariffs would raise costs of drugs and medical devices, potentially disrupting supply chains and increasing healthcare costs in the US. The automotive sector may see increased vehicle prices, affecting consumers and dealers, while pressuring European manufacturers operating in the US or exporting there. European perfumes and cosmetics, particularly French and Italian ones, are also affected by the tariffs, with the potential for increased retail prices in the US, reducing demand and sales volumes for European brands.
The EU is not taking these threats lightly. It is considering retaliatory tariffs targeting significant US imports such as aircraft, automobiles, medical devices, IT equipment, industrial machinery, scrap metals, and chemicals, covering large import volumes (€95 billion worth of US imports). The EU has also launched public consultations to assess and possibly apply additional import duties on US products, indicating readiness to escalate trade barriers if negotiations fail.
Diplomatic efforts seek to avoid tariff escalation, as recent agreements averted the full 30% tariff in favor of a lower 15% rate, though still representing a substantial increase over previous rates.
The proposed tariffs threaten to impact exports worth hundreds of billions. Leading the European automotive exports to the US are German brands such as BMW, Mercedes, Porsche, and Audi. Pharmaceutical products are the main export from Europe to the US, accounting for 22.5% of the total in 2024. The American market represents almost a quarter of Mercedes' turnover, and Mercedes also produces SUVs for export in the US.
Pharmaceutical companies are calling on the EU for a simplification of rules to remain competitive. Some pharmaceutical companies have already started strengthening production on American soil. Volkswagen has already registered a significant drop in deliveries to the US following the first waves of tariffs.
These dynamics underscore the delicate balance of transatlantic trade relations, where tariffs can harm consumers and producers on both sides while prompting broader economic repercussions and retaliatory trade policies. While the full 30% tariff has been averted for now, even a 15% tariff significantly raises costs on EU goods. This threatens growth, disrupts key sectors like pharmaceuticals, automotive, and cosmetics, and risks a tit-for-tat escalation in tariffs between the US and EU.
- In response to the increased tariffs, the European Union is contemplating increasing local production of goods, such as cosmetics, in an attempt to mitigate the financial impact on companies like L'Oréal and maintain their lifestyle branding in the US market, while also considering price increases to cover the new tax burden.
- The escalating trade dispute between the US and EU has led the European Union to consider retaliatory tariffs on significant US imports, particularly technology-related goods such as IT equipment and industrial machinery, which could have far-reaching consequences for American businesses in these sectors.
