The auto industry in the EU, and especially in Germany, is looking on with a growing sense of foreboding as Washington continues holding to a threat to impose tariffs on cars imported from the European Union.
US President Donald Trump's administration could impose tariffs of as much as 25 percent on foreign-made vehicles and parts including those from the EU. These could come into force if the U.S. is unable to reach a new trade deal with the bloc. At present there is a 2.5% tariff on EU-made cars imported to the United States.
New tariffs could push up the price of a car manufactured in the EU on the U.S. market by more than 5000 euros. Higher prices would mean fewer sales and force a need to cut production.
Bump-on effect in Finland
If, for example, Germany's Daimler is forced to scale back production, one of the first to feel the pinch is likely to be the Valmet Automotive plant in Uusikaupunki, Finland. Valmet Automotive manufactures Mercedes-Benz vehicles under contract with Daimler, 110,000 of them last year.
Usually when market demand falls, contract manufacturers are in a weaker position than plants in the home country of the principal producer. So far, however, the threat of new tariffs has not affected the Valmet Automotive facility.
"We are monitoring the situation, but it is impossible to evaluate the impact on production in Uusikaupunki," says Valmet Automotive Communications Manager Mikael Mäki. "Right now our company is producing cars as has been agreed upon with our customer. The impact of tariffs is not being seen in our operations."
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Strong recent growth in car exports
"The direct effects of new tariffs on cars on Finland's automotive industry would be significant. The Research Institute of the Finnish Economy has estimated that more than 10 percent of jobs in the automotive sector would be lost. That's a massive impact," notes Nordea Bank Chief Analyst Jan von Gerich.
von Gerich believes that the threat of tariffs is a credible one, even though he hopes that they can be avoided.
"My projection of the possibility of [new] tariffs is in the range of 30 to 40 percent," he adds.
The export of cars manufactured in Finland has been on a sharp upward curve. Cars produced here are first shipped to Germany, from where they are then forwarded on to the U.S. and other export markets.
"A growing share of Finnish-produced cars ends up in the United States, so the effects of a possible tariff on contract manufacturers could be big. If these tariffs are shifted directly to retail prices, exports to the United States could dry up very quickly," points outs Olli-Pekka Penttilä, director of statistics at Finnish Customs.
Finnish Customs estimated that almost all petrol engine cars manufactured in Finland were exported to the U.S. via Germany last year - while in 2017, a good half ended up in the United States. In practice, these were Mercedes-Benz models produced at Valmet Automotive's plant in Uusikaupunki.
U.S. custom figures show that during the first ten months of last year, approximately 1.5 billion euros worth of Finnish-made cars were imported to that country, 70 percent more than during the same period of 2017.