Following the announcement of a U.S.-Japan trade agreement easing auto tariffs, European carmakers saw shares surge amid hopes for similar relief, yet the crucial EU-U.S.
On Tuesday night, former U.S. President Donald Trump announced a trade deal with Japan, and—no surprise—this quickly sparked a noticeable rally in European car stocks the very next morning. Cities that are pretty much symbols of Germany’s vast automotive scene, like Wolfsburg and Stuttgart, seemed to breathe a bit easier, as news hinted that there might be some movement on Trump’s stubborn tariffs on imported vehicles. But you see, even though there's this progress involving Japan, the big, much-watched trade agreement between the European Union and the U.S. is still very much up in the air.
German automotive giants—Volkswagen, Mercedes-Benz, and BMW—saw their stock prices jump over 5%, while Japanese automakers Honda and Toyota had even bigger shoots of 11% and 13%, respectively. This trade deal, by the way, lowered the U.S. import tariff on Japanese cars from 25% to 15%, a win Japan really pushed hard for because it ships tens of billions of dollars' worth of vehicles across the Pacific every year—accounting for over a quarter of Japan’s total exports. Industry insiders say that cars are kind of a key symbol in trade talks because they matter for the economy, industry, and jobs all at once.
Europe’s auto sector is particularly exposed to U.S. tariffs too—about 8% of its exports to the U.S. are cars—and major German brands like VW, Audi, and Porsche are feeling the heat pretty directly. The 25% tariff imposed in April under Trump’s trade policies has already hit hard. Volkswagen, for example, reported a €1.3 billion loss in the first half of 2025, directly tied to tariff-related costs. Volvo’s written down around €1 billion on its Chinese-made but U.S.-sold ES90, and Stellantis—home to Chrysler, Opel, Fiat—also announced multi-billion euro losses.
What’s really interesting though, is that U.S. carmakers aren’t spared the impact—Far from it. Take General Motors; they import the Chevrolet Trailblazer from South Korea, and yes, it faces that 25% tariff. But GM hasn't pushed through price hikes to consumers, absorbing more than a billion dollars in profit loss instead. According to data from Deutsche Bank, it seems that U.S. importers are mostly footing the bill for tariffs—rather than passing them on to consumers—which partly explains why U.S. inflation isn’t spiking even more.
The truth seems to be creeping in that a permanent 15% tariff on auto imports—well, it’s pretty much here to stay. Volkswagen’s CEO Oliver Blume has resigned himself to this reality, especially compared to earlier times when the EU tried to fight any tariff hikes. This change is partly driven by pressure from Germany, where the auto industry is a major economic player, and also because Trump’s clear focus has been on protecting U.S. auto jobs and the industry. It’s causing manufacturers to rethink their strategies. GM plans to bump up U.S. production by roughly 300,000 vehicles by 2027; Volvo’s expanding its plant in South Carolina, and Audi has even floated the idea of building a U.S. plant so they can better handle these new tariff realities.
Volkswagen, in particular, has faced serious challenges after these tariffs were announced. The company revealed that it lost €1.3 billion in the first half of 2025 directly because of tariffs, which caused them to cut their full-year earnings forecasts. Their operating profit margin—originally expected to be somewhere around 5.5–6.5%—was now revised downward to about 4–5%, and sales projections for the year are now flat instead of the earlier goal of roughly 5% growth. Second-quarter results highlighted these struggles—operating profit fell 29%, to €3.8 billion, mainly due to tariffs, restructuring costs, and a shift toward electric vehicles that tend to have lower margins.
In response, Volkswagen is trying to find ways to soften the blow—mainly by ramping up U.S. investments. CEO Blume mentioned they’re in ‘good discussions’ with U.S. authorities and are optimistic about striking a deal similar to the Japan-U.S. agreement, one that might cut tariffs for their brands. This could involve more investment and even setting up U.S. production facilities—maybe even an Audi plant in America. Blume pointed out that if they increase U.S. manufacturing, it not only reduces tariff costs but could also create opportunities for exporting vehicles to other parts of the world—aligning pretty well with Trump’s goal to boost domestic jobs and the U.S. auto industry.
Now, speaking of the Japan-U.S. deal—it's a pretty tangled web of trade, investments, and political messaging. Trump’s team claimed it was a big win—saying Japan committed to investing $550 billion with 90% of the profits coming back to the U.S.—but Japanese officials pushed back, saying there weren’t any concrete agreements on profit sharing or investment details. What the deal does include is Japan agreeing to a lowered 15% tariff on cars and parts, some reforms to fuel subsidies, and promises to boost U.S. agricultural imports—but without making any promises about quotas or enforceability. Analysts are cautious, arguing that the deal is a bit fuzzy overall and might have limited teeth, but at the same time, it could serve as a blueprint for other countries trying to navigate Trump’s tariffs and trade push.
Looking ahead, European automakers and policymakers are hopeful that lessons from the Japan deal can be used to open a door for their own negotiations—perhaps balancing tariff relief with commitments to U.S. investment and manufacturing. Even though the economic environment is tough, most people agree that knowing what the tariff rate will be—say, around 15%—is better than the uncertainty that's been stressing out investment plans. Still, the impact of a sustained 15% tariff on European vehicles would be relatively modest on overall growth—maybe just a slight slowdown—yet certain regions and specific manufacturers will definitely feel the pain more. It’s these geopolitical and economic complexities that make ongoing trade negotiations especially interesting to watch.
Source: Noah Wire Services
