Why Europe’s car industry is at the centre of a new US trade war - Al Jazeera

SaveShareBy Priyanka ShankarPublished On 5 May 2026Last week, US President Donald Trump announced to hike tariffs on cars and trucks manufactured in the European Union from 15 percent to 25 percent after accusing the bloc of taking too long to comply with the terms of the trade deal agreed last July.Trump’s latest trade barb comes as the transatlantic ties have been strained, with the latest friction point emanating from the EU’s refusal to join Washington’s current war on Iran.Recommended Stories list of 3 itemslist 1 of 3UAE accuses Iran of attacks as ‘large fire’ breaks out at oil refinerylist 2 of 3Does Trump hold ‘all the cards’ against Iran in the Strait of Hormuz?list 3 of 3US Secret Service shoots gunman near White Houseend of list“I am pleased to announce that, based on the fact the European Union is not complying with our full agreed to Trade Deal, next week I will be increasing Tariffs charged to the European Union for Cars and Trucks coming into the United States,” Trump wrote, without providing any evidence for his claim.The US president, however, said that vehicles made in the US by EU companies would be exempted from the levy.So far, no additional tariffs have come into effect, but the move has surprised Brussels, with the European Commission rejecting Trump’s claim that the EU was not complying with last year’s trade deal.So, how significant is Trump’s threat, and how will the EU respond?Here’s what we know:What is the current trade deal between the EU and US?In July 2025, the US and the EU reached a wide-ranging trade agreement, capping US tariffs on most EU goods, including cars, at 15 percent after months of standoff. The EU also agreed to spend hundreds of billions of dollars on US weaponry and energy products, on top of existing expenditures.Speaking to reporters at his Turnberry golf resort in Scotland after signing the deal, Trump had hailed the agreement as the “biggest deal ever made”. Advertisement Trump said that the EU would be “opening up their countries at zero tariff” for US exports, but added that US levies on steel and aluminium, which he had set at 50 percent on many countries, would not be cut for EU products. Aerospace tariffs would remain at zero for now, he said.The US president said that the EU would spend an extra $750bn on US energy products, invest $600bn in the US and buy military equipment worth “hundreds of billions of dollars”.European Commission President Ursula von der Leyen had said the agreement would “bring stability” and “bring predictability that’s very important for our businesses on both sides of the Atlantic”. Von der Leyen had also defended the deal, saying the aim was to rebalance a trade surplus with the US. Trump has made no secret of using tariffs to try to trim US trade deficits.In 2024, the US ran a $236bn goods deficit with the EU. Last year, despite tariffs being announced, the goods trade surplus continued.According to Eurostat, the statistics division of the European Commission, “In the third quarter of 2025, the EU registered a 40.8 billion euro ($47.7bn) trade in goods surplus with the United States. This was a 49.7 percent decline compared with the 81.2 billion euros ($95bn) trade surplus in the first quarter of 2025”.Pharmaceuticals, car parts and industrial chemicals were among Europe’s largest exports to the US, according to EU data.The July trade deal has yet to be implemented. In January, EU lawmakers initially paused its ratification after Trump threatened to annex Greenland, an autonomous territory of Denmark.Then, in February, the US Supreme Court declared Trump’s sweeping global tariffs unlawful, putting the future of Washington’s trade deals with every country in limbo.Trump, however, immediately signed an executive order under Section 122 of the US Trade Act of 1974 to impose a blanket 10 percent tariff on all countries the US trades with, starting on February 24. Later, he raised the tariff to 15 percent, the highest rate allowed under this trade law.The EU is now facing a 25 percent tariff on cars and trucks in addition to the overall 15 percent tariffs.The European Parliament has given conditional approval to the trade deal. EU lawmakers have also strengthened the deal’s safeguards by including a provision to suspend the agreement if the US imposes additional tariffs above 15 percent or introduces new tax levies. EU member states are yet to agree on the parliament’s proposals.On Wednesday, representatives of the European Parliament and the European Council, the body representing EU governments, will resume negotiations on the matter. EU member nations have to agree on the European Parliament’s recommended safeguards before the deal is implemented. Advertisement EU members largely want a quick agreement between Parliament and Council on implementing the bloc’s side of the deal, diplomats told the Reuters news agency.German Chancellor Friedrich Merz, whose country is likely to be hit hardest by a car tariff increase, told broadcaster ARD: “The Americans have it finalised, and ‌the ⁠Europeans haven’t – and that’s why I hope we can reach an agreement as quickly as possible.”How significant are the new tariffs? Are they legal?Shantanu Singh and Vikram Naik, two India-based international trade lawyers, noted that prior to the EU-US trade deal, cars and car parts faced US import tariffs of up to 27.5 percent. The deal struck in July established a tariff ceiling, reducing them to 15 percent, making the car sector one of its biggest beneficiaries.“So, the threat of reversing those tariffs to 25 percent become quite significant commercially. At the same time, the threat is politically significant to US trade partners with deals. They can now see that there is no room for legal arguments or dispute settlement, and these deals can be rendered meaningless due to perceived non-compliance,” they told Al Jazeera in a joint response.Peter Chase, senior fellow focusing on the transatlantic economy at the German Marshall Fund of the United States’s Brussels office, said Trump’s announcement reportedly stems from his impatience with the EU’s lengthy procedures to