The German carmaker Volkswagen is facing a perfect storm of challenges—declining sales, rising production costs, and mounting competition from lower-priced Chinese automakers. Now, it’s bracing for yet another potential blow: tariffs proposed by U.S. President Donald Trump during his second term.
Volkswagen has expressed concern over the potential economic fallout of these tariffs, which could significantly disrupt its operations, particularly its key factory in Mexico.
In a statement shared with Euronews, a Volkswagen spokesperson said, “The Volkswagen Group is concerned about the harmful economic impact that proposed tariffs by the US administration will have on American consumers and the international automotive industry.”
Trump, who has championed protectionist trade policies, reiterated his stance during his second inaugural address on Monday, pledging to impose tariffs and taxes on foreign imports to prioritize domestic goods. The proposed measures include a 25% tariff on imports from Mexico and Canada, a 10% tariff on global imports, and a staggering 60% on goods from China.
If the tariffs on Mexico and Canada are implemented as early as February 1, they could undermine the trade agreements solidified during Trump’s first term, including the trilateral US-Mexico-Canada Agreement (USMCA). Trump argues that such levies will drive economic growth by favoring American products, though many experts warn that higher tariffs are more likely to raise costs for U.S. consumers rather than create meaningful economic benefits.
Volkswagen’s Broader Challenges
The potential tariffs come at a time when Volkswagen is already navigating rough waters. Slowing global demand and stiffer competition from Chinese carmakers have eaten into the company’s financial margins. Meanwhile, the shift to electric vehicles (EVs)—a critical industry pivot—is proving to be another hurdle. Volkswagen’s EV efforts have been further strained by the German government’s recent decision to eliminate subsidies for buyers, placing additional pressure on the company to stay competitive in a rapidly evolving market.
Last year, Volkswagen even floated the idea of shutting down some of its plants in Germany to cope with rising costs, although the company ultimately stepped back from that decision in December.
Mexico and U.S. Operations Under Threat
Volkswagen’s plant in Puebla, Mexico, holds significant importance within the company’s global operations. It’s the largest automotive factory in Mexico and produced nearly 350,000 vehicles in 2023, primarily for export to the United States.
However, the tariffs pose a direct threat to the competitiveness of these exports. According to analysts from Stifel cited by Reuters, an estimated 65% of Volkswagen’s U.S. sales could be priced out of the market if Mexican imports are hit with new duties.
Despite these challenges, Volkswagen is doubling down on its commitment to the U.S. market. The company has announced plans to invest more than $10 billion in its American operations, with funds directed toward its Chattanooga, Tennessee, plant and a partnership with Rivian, an electric vehicle startup. This collaboration is intended to bolster Volkswagen’s EV capabilities, leveraging Rivian’s advanced electrical architecture and software to keep pace with rivals in the electric car race.
In its statement, Volkswagen emphasized its commitment to working with U.S. leaders, saying it values “collaboration and open dialogue” with the government. “As a global company with deep roots in the United States, we look forward to continuing our longstanding and constructive partnership with the U.S. administration,” a spokesperson added.
While Volkswagen may be charting a path forward, the road ahead is far from smooth. With trade policies in flux and growing competition, the company finds itself in a high-stakes battle to maintain its foothold in key markets.