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A Strike on the German Car Industry: A CGE Analysis of Trump's Recent Tariff Hike

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Abstract

This paper explores the economic impact of the 25% U.S. tariff on new car imports, with a focus on Germany and the EU. Employing a Computable General Equilibrium (CGE) model built on the GTAP Version 11 framework, the study analyzes the effects on trade flows, sectoral dynamics, and factor markets in the USA, Germany, the EU, and the rest of the world. The simulation results suggest that unilateral trade measures, such as import tariffs on German automobiles, may ultimately be counterproductive. The U.S. fails to achieve substantial welfare or employment gains, as a significant portion of German car imports is used as intermediate inputs in U.S. car manufacturing. The findings underscore the considerable impact on Germany’s automotive exports and the broader European trade landscape, highlighting the far-reaching consequences of protectionist policies on global trade, production, and employment.

Suggested Citation

  • Hassan, Sherif, 2025. "A Strike on the German Car Industry: A CGE Analysis of Trump's Recent Tariff Hike," MSR Working Papers 25-2025, M&S Research Hub institute.
    • Handle: RePEc:ris:msrwps:2025_025
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    More about this item

    Keywords

    Tariff; CGE; Macroeconomics;
    All these keywords.

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies

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