US labour levy drives car tariffs to 35%

The latest American tariff threat has arrived in the language of forced labour, but its effect will be felt in the ordinary arithmetic of trade. European cars heading to the US now face cumulative tariffs of up to 35%. Steel and aluminium face 60%. On June 2nd, the Trump administration proposed an extra 10% tariff on EU exports, added to levies already in place, accusing Europe of failing to keep forced-labour goods out of its supply chains (USTR, CNBC). The EU shipped €532 billion in goods to the US in 2024 (Bundesregierung). A sizeable part of that trade is now in the firing line.

The legal swap

The tariffs needed a new legal outfit. In February, the Supreme Court ruled 6-3 in Learning Resources v. Trump that the president could not use IEEPA, the International Emergency Economic Powers Act, a security-emergency law, to impose tariffs (Supreme Court). The IEEPA tariffs were terminated within days.

The administration then reached for Section 301, a trade-law route with explicit congressional backing. On March 12th, the US Trade Representative opened investigations against 60 countries. The charge was that they tolerate forced-labour goods in their supply chains. The EU faces 10%. Countries without forced-labour legislation, including Japan and South Korea, face 12.5%.

The politics of that framing are tidy. Nobody wants to be seen defending exploitation. Bernd Lange, who chairs the European Parliament’s trade committee, called the findings "utterly absurd" (NBC News). He pointed to the EU’s own forced-labour import ban, adopted in 2024 (Council of the EU). His read was blunt: "First the tariff measure is decided, then the suitable legal justification is found."

Washington does have a point it can press. The EU’s Forced Labour Regulation will not apply until December 2027. The US model also goes further on China’s Xinjiang region, where it presumes products are tainted unless importers prove otherwise. Europe puts the burden of proof on regulators rather than companies. The European Commission called the tariffs "unjustified". Still, a three-year enforcement gap is awkward terrain in a negotiation.

Who pays the stacking bill

The damage is in the stacking. The forced-labour levy lands on top of tariffs already in force, so the headline rate quickly becomes something more severe than a single 10% charge.

The Turnberry trade deal, the EU-US framework agreed in August 2025, set most tariffs at 15%. Add 10%, and the baseline for most EU exports rises to 25%. For steel and aluminium, where Section 232 national-security tariffs already stand at 50%, the total reaches 60%. For cars, which already carry 25% under existing auto levies, the surcharge pushes rates towards 35%. Bernstein Research calculates that a 10-point increase alone would cut German carmakers’ operating profits by €2.6 billion this year.

For Ireland, the important line is the exemption list. Pharmaceuticals, the EU’s biggest US export category at 22.5% of total goods trade, are explicitly exempted, as are energy and aircraft parts. That gives pharma-heavy Ireland some cover for now. Germany’s car and machinery sectors do not get the same protection.

German business is already counting the cost. The DIHK, Germany’s chamber of commerce, says 59% of surveyed firms are facing rising compliance costs from US tariffs, while 14% are scaling back their US operations. Among companies staying in the US market, 68% are passing the cost to American buyers through higher prices. European exporters take the hit on margins; American consumers take it at the checkout. How that burden is divided depends on bargaining power, but two-thirds of firms have already made their call.

The tariffs are not final. Public consultation runs until July 6th. The pharma exemption is the largest variable: if it is removed, EU exposure rises by roughly a fifth. Section 301 is on firmer congressional ground than IEEPA was. But blanket country-level tariffs on allies, imposed over enforcement timelines, have not been tested in court. The next challenge will turn on that point.