Serbia's automotive industry exported parts worth €150 million to the United States last year, primarily consisting of tires and components.

Among the largest exporters from Serbia to the U.S. are Japanese Toyo Tires and Chinese companies including Linglong, Johnson Electric, and Minth.

However, the introduction of new tariffs on automobiles from the European Union, effective Wednesday, suggests potential adverse effects on Serbia’s automotive sector, which is closely tied to the German market.

The tariffs are seen as an additional burden for the already struggling European automotive industry, which faces internal challenges including outdated processes and methods, alongside external issues marked by declining consumer interest and weak demand.

These factors have contributed to a 15% drop in exports of automotive parts in January compared to the same month last year, prompting several factories to announce business reorganizations or even shutdowns.

Aleksandar Petrović, CEO of Leoni, a company in Serbia producing wiring systems for European car manufacturers, noted that it remains difficult to assess the precise impact of the new tariffs on the sales of European vehicles in the U.S. He indicated that it is uncertain how the tariffs will influence Leoni's operations, which include four factories in Serbia employing approximately 12,500 workers.

While Leoni primarily serves the European market, there is concern regarding how clients will adapt their production for vehicles exported from Europe to the U.S.

The implementation of tariffs and the resulting reduced demand could accelerate the already initiated exit process from Serbia for some companies.

Approximately 100,000 people are employed in this sector, with estimates suggesting a potential reduction of about 10% in the near future.

Unit labor costs in Serbia have increased by nearly 30% over the past eight years, even more so in the industry, diminishing Serbia's competitiveness.

Additionally, the real appreciation of the dinar against the euro has outpaced the reduction in the productivity gap between European countries and Serbia.

Milojko Arsić, a professor at the Faculty of Economics, commented that the rapid growth of wages in euros has rendered low value-added jobs unprofitable in Serbia.

This scenario is exacerbated by the fact that the automotive sector is characterized by low capital intensity and low costs of relocating production.

He pointed out that the withdrawal of the German automotive cable manufacturer Draxlmaier was hastened by the crisis in the German automotive industry; however, the main factor for this decision was the rising cost of doing business in Serbia.

While industrial production data for late last year and early this year indicate a downturn in automotive parts production, new figures released on Tuesday showed a 10% increase in car production for February, attributed to the commencement of manufacturing the Fiat Grande Panda and Citroën C3 at Stellantis' factory.

It is expected that these models could help mitigate some of the losses in component production, as they are linked to the European market, with the Citroën C3 showing strong sales in France and North Africa.

The automotive sector holds a significant share of Serbia's commodity exports and manufacturing industries but remains considerably lower than in surrounding countries such as Hungary, Slovakia, and the Czech Republic, which have structured their economic dynamics around the automotive industry.

The sector contributes 4% to GDP; however, it constitutes around 15% of total exports, making it likely that tariffs will negatively affect export volumes.

The U.S. market is crucial for German automakers, with approximately 446,566 vehicles exported from Germany to the U.S. in 2024, representing 13.1% of total German automotive exports.

Tariffs could raise import costs for vehicles, leading to higher prices for end consumers or reduced profit margins for manufacturers—both scenarios potentially detrimental to demand and competitiveness in the German automotive sector.

Alternative markets, such as China or other Asian countries, may partially offset losses, although those regions also present trade barriers and strong competition.