Impact of 25 per cent US tariffs on the risk of bankruptcy and insolvency of the automotive sector

Impact of 25 per cent US tariffs on the risk of bankruptcy and insolvency of the automotive sector

US President Donald Trump's decision to impose 25 per cent tariffs on imported cars from April has sparked debate in the US automotive sector. The policy aims to protect jobs and support domestic manufacturers. However, experts point out that the introduction of new tariffs could significantly increase the risk of bankruptcy and insolvency, especially for companies already in financial distress.

Bankruptcy and insolvency - key differences

For a proper understanding of the impact of the new duties, two key concepts need to be clarified:

• Bankruptcy - a formal legal procedure that allows companies with serious financial problems to restructure their debts under court supervision (so-called Chapter 11 in US law) or liquidate their assets to pay off their debts (Chapter 7).
• Insolvency - a situation where a company is unable to pay its financial obligations on time, which can lead to formal bankruptcy.

• Chapter 11 versus Chapter 7 of the US bankruptcy law
• Chapter 11 - enables companies to continue their business operations while undergoing a court-supervised debt restructuring process with the aim of regaining financial stability.
• Chapter 7 - includes the liquidation of the company, the sale of its assets and the termination of its business activities.

Possible benefits reducing the risk of insolvency

Proponents of tariffs point to several aspects that could improve the health of companies in the US automotive industry:

Improving the position of domestic producers: Higher tariffs on imported vehicles can improve the competitiveness of domestic companies such as Tesla, increasing their market share and profitability. This could have a positive impact on their financial stability and reduce the risk of insolvency.

Motivation to increase efficiency: Rising import costs can mobilise companies to optimise their logistics chains, production processes, invest in new technologies and restructure their operations, which will translate into better financial health in the long term.

Additional funding to support the industry: The estimated billions of dollars a year in customs revenue could be used by the US government to provide temporary financial support to companies in financial distress, reducing the risk of insolvency.

Potential risks arising from the introduction of customs duties

Critics of President Trump's policies point to several serious risks:

Immediate increase in financial burdens: Major manufacturers such as Ford and General Motors may face soaring production costs and falling margins, which, especially for less profitable companies, can quickly lead to restructuring procedures (Chapter 11).

Disruptions in global supply chains: Due to complex and global supply chains, an increase in the cost of importing automotive parts can cause smaller suppliers to become insolvent, disrupt production and increase the risk of industry-wide bankruptcy.

Declining investor confidence: Uncertainty related to new customs duties may limit investment in the automotive industry. Lack of access to capital may further exacerbate companies' existing financial problems and increase the risk of insolvency.

Conclusion - between market protection and financial risk

The introduction of 25 per cent tariffs by President Trump's administration is a significant shift in US economic policy to protect the domestic automotive industry. However, the same policy may also increase financial risks in the sector. The ultimate impact of the new regulations on the stability of the industry will depend on the adaptation of companies, the reaction of the financial market and the effectiveness of possible US government action.

The coming months will be crucial for the automotive sector, which must closely monitor developments and implement measures to minimise potential financial risks.