As the spring sun rises over Wolfsburg, the mood among workers at Volkswagen's main factory is anything but bright. Carsten, a 63-year-old assembly line worker, took a moment to reflect on the impact of Donald Trump's recent tariff policies as he stepped out of gate 17 at the end of his shift. "It’s just another nail in the coffin for the German car industry," he lamented on Thursday, April 3, 2025. With the U.S. imposing a staggering 25% tariff on car imports—up from the previous 2.5%—Carsten expressed his frustration over the precarious state of the industry he has dedicated over 15 years to. "You have to laugh or you’d not survive," he chuckled, noting the grim reality of potential job cuts and factory closures looming over the workers.
His colleague Ahmed, who was rushing home after an early shift on the VW Golf assembly line, echoed Carsten's sentiments. "The mood inside is not good," he said, revealing his worry for the future of their jobs. The atmosphere at the factory has become increasingly tense, with workers feeling disillusioned by management decisions, especially in light of past scandals like the "dieselgate" emissions cheating scandal that had already tarnished the reputation of Germany's largest carmaker.
Stephan, a newcomer in electrical infrastructure at the plant, offered a glimmer of hope amidst the uncertainty. "Initially, this is going to be very bad for the German car industry, and for Germany in general, but long term it might serve us well to learn to be more independent from the U.S.," he said, emphasizing the need for the new government to set the country on a better course.
Germany's new government—led by conservative former banker Friedrich Merz—is now grappling with the fallout from Trump's tariffs while trying to steer Europe's largest economy out of its current economic woes. The economic challenges are compounded by a significant trade deficit with the U.S., which is larger than with most other countries. A headline in the tabloid Bild captured the essence of the situation: "Trump’s economic war is in full flow and Germany is stuck smack bang in the middle of it."
The leading economic institute IW released a study on April 3, projecting that the loss to Germany's economy due to these tariffs could reach an estimated €200 billion (£170 billion) over the next four years, translating to a drop of 1.5% in GDP. This grim forecast highlights the potential devastation to the German economy, particularly for the auto industry, which employs over 750,000 people.
In the U.S. market alone, annual sales of VW vehicles amounted to almost 380,000 last year, representing 8% of the company's total global sales. According to the Association of German Car Makers (VDA), overall exports of German vehicles and parts reached nearly €37 billion. However, the new tariff regime has forced VW to take drastic measures, including halting rail shipments of vehicles from its Puebla, Mexico factory to the U.S. and suspending transport of U.S.-bound cars via the western German seaport of Emden. In a memo to North American retailers, VW announced plans to introduce an "import fee" on affected vehicles, clarifying to customers that the financial burden stems from their own government's policies.
Despite the tariffs, major German car manufacturers like VW, Mercedes, and BMW have increasingly established production facilities on U.S. soil, producing 900,000 cars last year according to the VDA. Nevertheless, the tariffs will still impact these companies, as many essential parts required for production must be imported, leading to expected price increases of $5,000 to $10,000 per vehicle, with luxury models potentially seeing hikes of up to $50,000.
In response to the tariff announcements, the U.S. carmaker Ford is reportedly planning to offer its customers cutdown prices previously reserved for employees, under the campaign banner "From America for America." This strategic move underscores the competitive landscape that is quickly evolving in the wake of the tariff imposition.
Hildegard Müller, president of the VDA, expressed concern over the punitive taxes, stating that they turn existing trade policy on its head. She remarked, "This marks the departure of the U.S. from the rules-based global trading order... it is not America First, this is America alone." Ferdinand Dudenhöffer, founder of the Center for Automotive Research, warned that German manufacturers and suppliers would face severe repercussions. "If this ends up being ongoing, German car manufacturers will increasingly move their production to the USA, leading to a further loss of jobs in Germany," he cautioned.
Amidst the turmoil, economist Marcel Fratzscher suggested that Germany's best response to the tariff situation is to "fortify itself" from within. He urged the new government to seize this crisis as an opportunity for reform and to collaborate with the EU to impose reciprocal taxes on U.S. digital companies. "The future isn’t being made in the U.S.; our own future is being made here in the country. And I would like the coalition partners to have more courage," he stated, advocating for a radical change in economic policy.
As the dust settles from Trump's tariff announcements, the German auto industry stands at a crossroads. With workers expressing their fears and industry leaders grappling with the implications, the future remains uncertain. Will the German government rise to the challenge and implement the necessary reforms to protect its economy, or will the tariffs mark the beginning of a new era of trade conflict between Germany and the U.S.?
