Saturday, December 13, 2025

Cheap energy

The use of tariffs by Trump to negotiate other deals is complicated and difficult to follow. Here is one example of what has happened. Prior to Trump, Germany could sell a $50,000 Mecedes here and incur a 2.5% tariff but the if the US wanted to sell a $50,000 Cadilac in Germany they would pay a 10% tariff plus 19% value added tax (VAT). Today there is no change in the German tariff but the US now charges 15% tariff. This is meant to encourage more German cars being built in the US. The result. German automakers can now build cars cheaper in Alabama than in Stuttgart. A German expert predicts 78,000 automotive jobs will migrate to America. The US production of oil and natural gas has lowered energy cost and the result is more companies coming to the US. German chemical companies can make products cheaper in the US due to factors like lower US energy costs (especially natural gas) and existing production facilities, but recent US tariffs are creating significant pressure, forcing some to cut costs in Germany or shift investment to the US to remain competitive and avoid high import taxes. The US does not want an advantage in tariffs but only fairness or what Trump calls reciprocal tariffs.

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