The Future of Transatlanticism – Effects of a Rise of US Import Tariffs on Exports inthe German Automotive Sector

Abstract

The promotion of low tariffs and free trade has been the underlying driver of global economic growth for the past decades. The recent political development in the United States and Great Britain calls into question, whether free trade will be supported by the governments of the industrialized world in the future. Shortly after being inaugurated in 2017, the President of the United States – Donald Trump - has repeatedly announced his plans to impose punitive tariffs on the import of foreign products in order to protect the country’s domestic economy. Besides a controversial border adjustment tax, he has frequently brought up the possibility of imposing a 35% tariff on automobile imports. This bachelor thesis aims to describe the theoretical background of import tariffs and analyze the effects of such a tariff on trade in the automotive sector between the United States and Germany as well as on German automobile manufacturers. Based on a theoretical literature research and international trade data from the United Nations, it will give theoretical insights into the effects of tariffs in general as well as specific implications for the automotive sector. The thesis will further analyze the importance of automotive trade between Germany and the United States. Finally, the paper will take a quantitative approach and draw a conclusion about the relationship between import tariffs on automobiles and passenger vehicle imports from Germany to the US utilizing a fixed-effects regression model based on panel data. The model will find a significant negative correlation between the examined variables, but even in a worst case scenario, German manufacturers are resilient to the predicted revenue losses caused by a tariff increase.