BERLIN (Feb 21): Volkswagen's Audi will expand output in North America and Mercedes will boost its US production as Europe's carmakers try to protect themselves against US President Donald Trump's tariff threats.

Trump has raised tariffs on aluminium and steel and threatened a 25% tariff on imports from Mexico and Canada, as well as on all autos and semiconductors, moves which will hit European carmakers' finances when they are already battling to bring down high costs in home markets and are fighting competition from China.

The US tariffs are expected to be high on the agenda when EU trade chief Maros Sefcovic meets car industry representatives as well as suppliers and battery makers in Brussels on Friday to talk about unfair trade practices and market access for the region's companies.

The trade chief met his US counterparts in Washington earlier this week and said he saw some willingness to reduce tariffs on both sides.

In the meantime, the car companies are moving ahead with their own plans.

Volkswagen's Audi, which currently has no production base in the US, plans to make its most important cars for the US market in the region and will announce a specific site this year, its chief executive told Reuters.

Mercedes-Benz's CFO Harald Wilhelm told investors on Thursday that the luxury brand, which exports high-end vehicles and sedans to the US from Europe, will localise more production at its plant in Tuscaloosa, Alabama to protect itself from the rising trade tensions.

Europe's carmakers exported around 800,000 vehicles to the US last year, according to official US trade data, about four times the number of cars exported by the US to Europe.

And a large chunk of the US car exports are from European carmakers, leaving them footing the bill for the EU's 10% tariffs on car imports from the US BMW, for example, sends around 90,000 cars from its Spartanburg plant in South Carolina to Europe.

The big three German carmakers accounted for 73% of the EU's car exports to the US last year, according to research platform JATO Dynamics.

"No matter which screw in the trade war is turned, German carmakers are almost always the losers," said Guillaume Dejean, auto industry expert at Allianz Trade, in a research note.

Mercedes-Benz and BMW, which are both major exporters from the US, have US production which gives them more flexibility to reshuffle output and make room for local sales.

BMW's chief purchasing officer said earlier this week the carmaker saw no need to negotiate a special deal for exemption from US tariffs, pointing to its large US presence and good relations with state government officials in South Carolina, home to its Spartanburg plant.

BMW's CEO Oliver Zipse has called for the EU to heed Trump's call to lower its 10% tariff on car exports from the US to 2.5%, in line with the current US import tariff on car imports from Europe. This would benefit BMW, which exports 90,000 cars a year to Europe from Spartanburg.

The wrangling over how to navigate tariffs comes at a tough time for the German car industry, where VW is seeking to cut output and jobs in a bid to lower costs.

Dejean said it was more urgent than ever for the industry to find the cash to pay for increasing its defences against competition and the trade tensions.

"It's a balancing act — of course it costs money to invest in new markets, at a time when funds are tight," he said. "But if not now, when?"

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