Trump tariffs threaten to jeopardize Slovakia’s thriving auto industry

The small, landlocked country in the heart of Europe appears uniquely exposed to President-elect Donald Trump’s “America First” economic agenda.

Nicknamed the “Detroit of Europe” for its thriving automobile industry, Slovakia produces more cars per capita than any other country in the world.

Trump’s promise to impose a across-the-board 10% or 20% tariff on all goods entering the United States risks damaging the Central European country’s reputation as a global leader in auto production.

The incoming U.S. president pledged Monday to impose new tariffs on China, Canada and Mexico as one of his first actions in office. The measure includes imposing an additional 10% tariff on all Chinese products entering the United States and a 25% tariff on all products coming from Canada and Mexico.

The fact that Europe was not mentioned in Trump’s first tariff announcement will likely be seen as good news by EU policymakers. But the 27 member countries may be concerned that it is only a matter of time before Trump turns his attention to the region’s automotive sector.

For Slovakia this is a big problem. This country of just 5.5 million people is heavily dependent on U.S. trade, with automobiles accounting for a significant portion of U.S. exports and the sector indirectly employing more than 250,000 people.

“Slovakia has turned into the Detroit of Europe,” Vladimir Vaňo, chief economist at Globsec, a think tank based in the Slovak capital Bratislava, told CNBC by phone.

“After the fall of the Iron Curtain in 1990, Slovakia did not produce cars at all, but it was very strong in what we call in the local language special manufacturing, which is the production of weapons, armored vehicles, tanks and what have you. “Vaňo said.

german Volkswagen “Vaňo was the first car manufacturer to see Slovakia’s engineering and manufacturing potential, starting with gearing box assembly and quickly expanding to full vehicle manufacturing,” Vaňo said.

Next to the Volkswagen factory in Bratislava majorOwns Peugeot, Hyundai Motors, and Kia Motors. hiJaguar Land Rover has since established manufacturing hubs, all within the country.

In 2022, Sweden’s Volvo announced plans to become the fifth car company to operate in Sweden when it opens a climate-neutral plant in eastern Slovakia in 2026. Volvo said the 1.2 billion euro ($1.26 billion) plant would produce only electric vehicles. automobile.

Asked how concerned Slovakia should be about the prospect of Trump tariffs, Globsec’s Vaňo said: “I’m worried. But it’s kind of a wait-and-see lame duck approach.”

He added that while there appears to be little Slovakia can do in the short term, its car manufacturers have proven to handle challenges relatively well in the past.

A Slovakian government spokesperson was not immediately available for comment when contacted by CNBC.

Germany’s auto industry, which is in crisis along with Slovakia’s, is likely to be highly vulnerable to Trump’s tariffs.

Europe’s largest economy is the region’s largest exporter of U.S. passenger vehicles, recording exports worth 23 billion euros last year, according to data compiled by statistical agencies Eurostat and ING Research. This corresponds to 15% of Germany’s total exports to the United States.

Rico Luman, chief transport and logistics economist at Dutch bank ING, said the possibility of US tariffs on European cars would likely make Germany’s bad situation even worse.

“It’s the heart of manufacturing, right?” Luman spoke to CNBC via video call. “So the automotive industry is ultimately linked to the steel industry, the chemical industry, so what’s involved here is the entire supply chain.”

Meanwhile, Slovakia is jointly the third largest exporter of passenger vehicles from Europe to the United States along with Sweden, and exports to the United States in 2023 will amount to 4 billion euros.

However, Slovakia’s passenger car exports in particular accounted for almost three-quarters (74%) of the total export package to the US, leaving Slovakia seriously exposed to the threat of Trump tariffs.

“Slovakia has obviously done very well in car production so far, but now it faces some challenges,” Arushi Kotecha, an automotive analyst at the Economist Intelligence Unit, told CNBC via video call.

One of these problems comes from China.

The EIU’s Kotecha said European lawmakers were trying to maintain their position by not allowing Chinese automakers to: BYD There is too much penetration into the local market in terms of sales and investment.

“At least with China, there is certainty because tariffs occurred and China retaliated. So the China part is done. But of course, with the election of Trump, there is some uncertainty,” Kotecha said.

“The problem with Trump is that he makes a lot of threats but doesn’t always follow through, or the degree to which he follows through varies,” she added.

When asked to comment on the outlook for U.S. tariffs, a spokesperson for the European Commission, the European Union’s executive arm, referred CNBC to European Commission President Ursula von der Leyen’s statement congratulating Trump on his election.

“The European Union and the United States are more than just allies,” Prime Minister von der Leyen said in a statement on 6 November.

She added, “Let us work together to ensure a transatlantic partnership that continues to deliver for our citizens. Millions of jobs and billions of dollars in trade and investment on both sides of the Atlantic depend on the dynamism and stability of our economic relationship.”