By Giulio Piovaccari, Christoph Steitz, Victoria Waldersee
MILAN/FRANKFURT/BERLIN (Reuters) -U.S. President Donald Trump’s erratic approach to tariffs is causing some smaller European companies to question the benefits of expanding in the U.S. market – a sign of how tough it has become to navigate trade in the world’s top economy.
By putting levies on everything from steel and cognac to cars and sandals, Trump aims to prompt foreign firms to move investment to the United States, building new factories and creating thousands of American jobs.
While major corporates from the auto and pharma sectors, have rushed to announce expansions or say they are considering them, the stream of announcements, roll-backs and exemptions has left some smaller firms warier of committing.
Italy’s EuroGroup Laminations currently pays no tariffs on the rotors and stators it supplies to U.S. automotive customers, including Ford and GM, from its plant in Mexico as they comply with existing import rules.
But even if it had to, moving production to the U.S. would expose it to tariffs in place on the special type of steel the company uses in its automotive parts, CEO Marco Arduini told Reuters.
“Skipping potential U.S. tariffs … would not necessarily mean it can compensate for extra costs and low availability of steel,” he said, adding that U.S. labour costs, which are up to six times higher than in Mexico, were also an issue.
German fan and motor maker ebm-papst has put on hold plans to build a third U.S. factory or expand one of its existing U.S. sites due to current developments, including the risk that the tariffs will trigger a U.S. recession.
“If there is an economic downturn in the U.S., demand may develop differently as a result,” CEO Klaus Geissdoerfer said.
Small- and medium-sized enterprises (SMEs) are the backbone of many economies, including Italy and Germany, both European Union members and major exporters to the United States.
Because they have smaller financial buffers than blue-chip peers, they may react to fresh trade risks more quickly than bigger companies.
“Contrary to Donald Trump’s hopes, his protectionism will not lead to more German companies moving to the U.S. and creating jobs there,” said Marc Tenbieg, head of the DMB association that represents Germany’s SMEs.
DMB in separate comments said a handful of SMEs, which declined to be named due to the sensitivity of the matter, are also currently reviewing their U.S. businesses as a result of Trump’s policies.
Some member firms of German engineering association VDMA are delaying purchases, Andrew Adair, the group’s trade policy advisor for North America, said following a trip to the United States earlier this month.