Donald Trump has threatened to impose hefty tariffs on EU car imports, frustrated by the fact that Europeans don’t buy more American vehicles. But why are US cars—aside from Tesla—not more popular in Europe?
One clear reason is Europe’s infrastructure. The narrow, cobbled streets of Italy and other historic cities make large American SUVs impractical, says car industry analyst Hampus Engellau. “Try navigating Italy in a big SUV—I’ve done it, and it’s very difficult.”
Cost is another major factor. Mike Hawes, CEO of The Society of Motor Manufacturers & Traders in the UK, points out that fuel prices in Europe are significantly higher than in the US. “We prefer smaller, more fuel-efficient vehicles, while Americans tend to favor larger ones,” he explains. Mr. Engellau adds that fuel in the US costs per gallon what Europeans pay per liter, making American-style gas-guzzlers a tough sell.
Despite these differences, European manufacturers have successfully gained market share in the US. As Trump himself put it, “millions of cars are coming in—BMW, Mercedes, Volkswagen, and many others.” In 2022, the EU exported 692,334 new cars to the US, worth €36 billion ($37 billion; £30 billion). In contrast, only 116,207 US-made cars were sold in Europe, generating just €5.2 billion.
Trump argues this trade imbalance is due to unfair policies, noting that the EU imposes a 10% tariff on US car imports, while the US currently charges only 2.5% on European cars. This discrepancy, he insists, needs to be corrected.
In response, Trump has floated the idea of raising US tariffs on European automotive imports, following his earlier 25% tariffs on steel and aluminum—key materials for car manufacturing. Concerned about a trade war, EU officials have reportedly considered reducing tariffs to safeguard their own automotive industry.
However, not all industry leaders support Trump’s approach. Jim Farley, CEO of Ford, has criticized the strategy, calling it “a lot of cost and a lot of chaos.” Veteran automotive executive Andy Palmer, former COO of Nissan and CEO of Aston Martin, argues that focusing on trade imbalances misses the bigger picture. “If you can help it, you don’t want to ship cars around the world. They’re big boxes of expensive air,” he says, emphasizing the industry’s push to manufacture closer to its customers.
European carmakers have long built vehicles in North America, including BMW, Mercedes, and Audi, with some of these cars being exported back to Europe. Historically, US manufacturers followed a similar strategy. General Motors owned and produced European brands like Opel/Vauxhall and Saab before selling Opel in 2017 and shutting down Saab in 2009. Ford also sold Aston Martin in 2007, Jaguar and Land Rover in 2008, and Volvo in 2010.
In recent years, Ford has struggled in Europe and is shifting focus towards electric and commercial vehicles. The company plans to cut 800 jobs in the UK and 2,900 in Germany by 2027—14% of its European workforce.
Tesla has been an exception, establishing a factory near Berlin to produce Model Y cars for the European market. Yet even Tesla faces challenges from the rise of low-cost Chinese electric vehicles gaining traction in Europe.
According to Jose Asumendi, head of European automotive research at JP Morgan, Europe is a highly competitive market. “You need the right products, and you need to run manufacturing plants efficiently.” He notes that domestic brands have a strong home advantage—BMW, Mercedes, Volkswagen, and Audi dominate in Germany, while France favors Peugeot, Citroën, and Renault, and Italy supports Fiat and Alfa Romeo. “There’s a natural tendency to buy local champions, especially in Germany, France, and Italy,” he explains.
While other European countries are more open to foreign brands, the competition is fierce, with Japanese, South Korean, and increasingly Chinese manufacturers also in the mix. Complicating matters further, each European country has its own tax regulations and language requirements, adding additional barriers for overseas carmakers.
Mr. Palmer doesn’t believe Europeans actively reject American cars. “European customers don’t have particular objections to American brands,” he says. Mr. Asumendi agrees, adding, “I think Europeans do like American brands, but there are many choices, so competition is intense.”
Trump’s goal is to strengthen the US car industry by encouraging domestic production and innovation. But Palmer warns that a trade war with Europe is unlikely to achieve this. “Tariffs insulate industries from competition, making them complacent and less innovative,” he argues.
“It’s not about trade,” Palmer concludes. “It’s about investment and collaboration.”
