Liberation Day for European Industry: Unbundling, Liquidity, Speed

7. April 2025

By Alexander Servais

When prominent hedge fund investor and Trump ally Bill Ackman warns of an impending “economic nuclear winter” triggered by America’s trade policy shift, some may dismiss it as hyperbole. But for the German economy—and particularly for its automotive sector—the risk is not theoretical. Whether one views President Trump’s strategy as a calculated negotiation tactic or the opening salvo in a structural trade war, businesses must prepare for fundamental and immediate changes.

Based on conversations with US stakeholders, it appears that imported vehicles will soon face tariffs of up to 25 per cent, potentially accompanied by an additional 20 per cent in retaliatory duties. The price shock to US consumers is self-evident, and the impact on foreign brands likely devastating. The industry’s reaction has been swift: Stellantis has temporarily halted production at some plants, Nissan is withdrawing select SUV models from the US market, and Audi, Jaguar Land Rover and Volkswagen have suspended exports or deliveries.

The effects are not confined to the car sector. US companies in other industries, including aerospace, are reportedly seeking to cancel supply contracts by invoking “force majeure” clauses. As uncertainty deepens, the ripple effects across the transatlantic economy are growing—yet Europe remains unprepared for the scope of the disruption.

Mittelstand under pressure

The backbone of the German economy—the Mittelstand, or mid-sized industrial base—is particularly exposed. For companies dependent on frictionless trade with the US, time is running out. Unless they can urgently downsize capacity and generate liquidity at unprecedented speed and efficiency, insolvency risks will mount rapidly.

The sector has already been strained by pandemic fallout, supply chain volatility, and rising competition from Asia. Many firms have exhausted financial buffers and are operating at the limit of their credit facilities. Relocating production to the US while simultaneously downsizing European operations requires capital few mid-sized businesses can muster. Large multinational corporations may be able to manage this transition; smaller firms with thousands of employees and complex ownership structures are at risk of being overwhelmed.

This warning is informed not only by current developments but by historical precedent. In the early 1990s, the collapse of the Soviet-aligned COMECON bloc triggered a devastating decline in demand for machinery and engineering goods, leading to a wave of insolvencies in southern Germany. Within months, the sector’s insolvency courts were overwhelmed. The lesson: most industrial companies cannot withstand a 25 per cent revenue drop over an extended period—certainly not without external financial support.

During the COVID-19 crisis, governments across Europe acted decisively to provide emergency aid. But pandemics are, by definition, temporary. A structural trade conflict initiated by the world’s largest economy is another matter entirely. And given Europe’s current debt burdens, a similar rescue effort may be out of reach.

Two uncomfortable truths

There are two key realities businesses must confront when making decisions:

First, US tariffs are not a temporary disruption. President Trump has long argued that America’s trade deficits can only be addressed through protectionism. This belief has been central to his political identity. In his own words: “I got elected on this.” Even if negotiations eventually yield some concessions, the underlying paradigm has shifted.

Second, financial markets are already pricing in broader consequences. Bank stocks have declined more sharply than auto manufacturers’ shares, reflecting wider systemic risk. Lenders face rising exposure across sectors, compounded by growing concerns over commercial real estate and rising unemployment. As a result, credit conditions have tightened further—especially in Germany—and raising fresh capital will become increasingly difficult over the coming months.

Speed is the new currency

Traditional restructuring programmes typically take 12 to 18 months to deliver measurable results. But if revenues begin to collapse, businesses will not have that kind of time. Every day of delay drains liquidity—and progress is often constrained by contract terms, notice periods and debt obligations. Companies must move quickly to unbundle risks: exit contracts that are no longer viable, neutralise liabilities, and address contingent exposures. Preserving the confidence of investors and lenders—no matter how nervous—is critical.

Firms that acknowledge the severity of the situation and engage experienced restructuring advisers early will have a strategic advantage. But such expertise will become scarce as the crisis deepens.

Meanwhile, companies not directly involved in transatlantic manufacturing should not be complacent. In regions like Stuttgart, one in three jobs depends—directly or indirectly—on the automotive industry. The effects will be felt across the value chain, from confectioners and clothing retailers to architects and kindergarten staff. Few have stopped to consider where their customers’ purchasing power comes from.

One can only hope that policymakers in Berlin and Brussels grasp the magnitude of the challenge—and act before it is too late.