As the standoff between the United States and China over trade continues to grow, European car manufacturers find themselves increasingly caught in the middle. The latest round of US tariffs on Chinese-built cars and auto components is upending global supply chains — and leaving European automakers like Renault and Stellantis in a squeeze.
A New Era for Global Car Manufacturing
The automobile industry in Europe has long thrived by accessing the cost advantages of China. The companies streamlined manufacturing and formed joint ventures, relying on China's booming manufacturing base to reduce expenses and maintain the companies competitive on a global basis.
30 years ago, the global auto industry has shifted towards markets that lower the cost of autos," said Bill Russo, Automobility's Shanghai-based chief executive. China, he said, became the focal point of this shift — expanding its car production from making 1 million vehicles annually to about 30 million today.
European carmakers went out that way in a backlash, establishing factories in China and forcing parts and finished vehicles back into Europe. They have done the reverse, though, with new American tariffs: 10% across all imported autos, and a whopping 145% on those from China.
Rising Costs and Strategic Ambiguity
As Russo explains it, these tariffs add "friction" to an already complex system. The impact? Higher production costs and lower price competitiveness — a phenomenon that can shrink markets and lower profits for firms that depend on China's low-cost manufacturing platform.
European carmakers are now being squeezed increasingly. Not only do they face U.S. tariffs, but they're also dealing with the EU's own hardening trade position against Chinese electric vehicles. These combined forces are squeezing their margins and making investment more complicated.
"Rising component prices either increases the price of vehicles or eats into profit margins. Both circumstances diminish competitiveness," Russo explained.
Trapped Between Giants
Caught between American protectionism and rising EU-China tensions, European carmakers are paying the price. They've spent decades developing low-cost, China-based supply chains that are efficient. Now, the formula is under attack, and it will not be simple, or cheap, to adapt to the new world of trade.
Consumers themselves will not benefit. Tariffs tend to raise prices without improving quality or choice, so consumers have less reason and a greater bill to pay.
As the international trade flows alter and economic nationalism gains ground, Europe's automobile industry is keen to re-consider its established dependence on China — before the road ahead turns even more uneven.