Skoda Kodiaq automobiles on the production line at the Volkswagen AG plant in Bratislava, Slovakia, on Friday, Dec. 1, 2023.
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U.S. President Donald Trump’s tariffs on auto imports is expected to hit hard for car brands and countries around the world, with economists warning a small landlocked nation in Europe could feel the worst of the impact.
Trump is poised to unveil the details of his latest round of sweeping tariffs at around 9 p.m. London time (4 p.m. ET) on Wednesday. The measures, which are separate from Washington’s levies on the global automotive sector, appear designed to rebalance the economic order in America’s favor.
Trump has already announced a 25% tariff on all imported vehicles, with charges on businesses importing vehicles coming into effect as of Thursday. The White House has said a tax for automobile parts is set to start in May.
The president’s back-and-forth announcements on tariffs have alarmed global investors, corporate executives and U.S. trading partners in recent months. Germany slammed Trump’s 25% auto tariffs as bad news for the U.S., the European Union and global trade.
Inga Fechner and Rico Luman, economists at Dutch bank ING, have said that, while Germany is most exposed to Trump’s 25% auto tariffs in terms of value, it is Slovakia that may feel the biggest impact.
“Germany’s car industry is in the eye of the storm and by far most exposed in terms of value, with major players like Volkswagen, BMW, Mercedes, and Porsche likely getting hit by tariffs,” ING said in a research note published March 28.
“But Slovakia – home to several car plants – is most exposed in terms of total US export volume,” they added.
Nicknamed the “Detroit of Europe” due to its thriving automotive industry, Slovakia produces more cars per capita than any other country in the world.
The nation of just 5.4 million people relies heavily on U.S. trade, with autos accounting for a sizable chunk of its U.S. exports and the sector indirectly employing more than 250,000 people.
Production could start to shift to the U.S.
ING’s Luman said there has been a frontloading of car shipments to the U.S. ahead of Trump’s auto tariffs and that “this will unwind” after the measures are imposed.
“Supply chains won’t be immediately redirected and redesigned amid high uncertainty for investors, but if it holds a while production will start to shift to the US,” Luman told CNBC by email on Wednesday.
On the other hand, Luman said Slovakia still has relatively low production costs, as local wages are significantly lower than in Germany.
“So, VW and Stellantis will likely seek to keep occupation rates of their factories in Slovakia up (for ICE models) and as such the export setback could also weigh on production in elsewhere in Europe, which will be replaced,” Luman said.
National flags of Germany, left, Slovakia, center, and a flag featuring the VW logo outside the Volkswagen AG plant in Bratislava, Slovakia, on Friday, Dec. 1, 2023.
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Vladimir Vaňo, chief economist at Globsec, a think tank based in Slovakia’s capital of Bratislava, has previously described the prospect of Trump tariffs as “worrisome” for Slovakia, while suggesting there appeared to be “very little” the country could do in the short term.
A spokesperson for Slovakia’s government was not immediately available to comment.
Slovakia is Europe’s joint-third-largest exporter of passenger cars to the U.S., alongside Sweden, with 4 billion euros ($4.3 billion) worth of exports to the U.S. in 2023, according to ING.
Notably, ING said more than 73% of Slovakia’s total exports to the U.S. consist of car and car parts, leaving the country acutely exposed to Trump tariffs.