Majority of German Industrial and Heavy Equipment Firms Gain Nothing From Section 232 Derivatives Change

When the changes were announced, they were less complex than the previous approach of paying 50% on the value of the metals in the item. Now, goods that are all steel are taxed at 50%. Some items were removed from the derivatives list. Of those remaining, importers would pay a 25% tariff on the full value of many items, while some manufacturing equipment would face a 15% tariff; and, if the weight of the object was less than 15% metal, it wouldn't have to pay at all.

But, according to Alessia Sarasino, director of international trade policy for VDMA, while some European exporters found their goods were subject to lower tariffs, the majority either paid about the same, or paid more. The VDMA represents 3,500 firms.

Of all the machinery exports from the EU that were subject to Section 232 tariffs, about one-third are in the 15% tariff category. VMDA asked companies to take into account both the change in tariffs and the reduced compliance costs, and asked if the new treatment of derivatives was less costly, the same or more costly. Only 22% said it reduced the burden; 30% said there was no difference and almost half said it was worse. She said only one member had a machine whose metal content was low enough to qualify for the de minimis treatment. The lower 15% rate is also in effect only until the end of 2027.

Sarasino said it doesn't always make sense which machines were in the 15% category, as a lot of the machinery needed for U.S. industrial production is still in the 25% category.

The VDMA plans to talk to the Bureau of Industry and Security again about the impact of the Section 232 tariffs on U.S. customers, both factories and farmers. John Deere has a German subsidiary that makes small and medium-size tractors; Germany also exports harvesting equipment. It has more than 20% of the import market, the most of any country. Germany is also the biggest player in textile machinery, plastics machinery, rolling mills and material handling machines, food processing and packaging machinery and is virtually tied with Japan in machine tools, the workhorses of manufacturing and processing things made of metal. Machine tools are essential for all high-value manufacturing, such as aerospace.

The tariffs are designed to push production of these machines to the U.S., where the companies that make them will buy U.S.-made steel. But that ignores the fact that even though some of these machinery categories have substantial domestic production -- construction equipment, agricultural equipment and machine tools among them -- the products made in the U.S. aren't the same as the ones made in Japan, South Korea or Germany.

"What sets us apart from the auto industry is we're not mass production," Sarasino explained, so it doesn't make sense for most companies to produce the same machines in Europe, for the European and Asian markets, and in the U.S. for the North American market.

She said that the Commerce Department officials she has talked to understand that these high-end manufacturers cannot have economies of scale if they localize production. "They are aware; we just have to push a little harder," she said.

While machine tools and plastic injection molding machines are now subject to lower tariffs, the category that covers conveyor belt systems and automated warehouse equipment is not. Power transmission machinery, where China has a 13.7% market share, Japan has a 13.5% market share and Germany has a 12% market share, is also facing higher costs because of the changes.

The fact that China is a competitor in this category and others, including a recently added derivative, cranes in Harmonized Tariff Schedule heading 8426, is "one of our most important arguments we make," Sarasino said. "If they can't afford European machines, they will be forced to turn to the Chinese market. It might come with cyber risk."

There was a Section 301 action against Chinese cranes, with a 150% tariff, but those tariffs were delayed for a year as part of the U.S. trade truce with China.

According to Mordor Intelligence, a top-quality five-axis machine tool can cost more than $3 million including installation. Between the added costs of tariffs and the higher interest rates, this has been reducing demand, either for upgrades or expansion.

The VDMA survey found 60% of companies said their business has been hindered by lack of orders; almost as many said tariffs have hurt their business.

Sarasino said when U.S. machine shops try to extend the life of their manufacturing equipment, that "makes us all less productive."

"Either they're not getting the equipment they need, or they're getting it somewhere else," she added.

For VDMA members whose machines are now in the 15% category, she's heard varying reports on how much of a price difference that makes. For one company, it was paying a tariff equivalent to 30% of the value when it was paying 50% on the value of the steel, so going to 15% on the total value was a substantial savings. Another tended to pay between 18% and 20% under the former instructions, so "he's a little bit better off now," she said.

She said it's too early to tell if the 15% category will result in improvements in the order book. German machinery exports declined 8% from 2024 to 2025.

While the compliance burden has been eased with the new Section 232 derivatives approach, not all difficulties were eliminated. Importers of goods that are made up primarily of aluminum must report where the aluminum was smelted and cast, as there is a 200% tariff on goods with Russian aluminum content. She said that some manufacturers of parts couldn't prove to CBP where the aluminum was sourced.

"We had some members with parts stuck at Customs because they couldn't document where they were smelted and cast," Sarasino said.

Some goods currently covered by the steel derivatives Section 232 tariffs could be covered in a pending Section 232 investigation on imported industrial machinery and robotics, if that report leads to action. "I keep asking, no one has any information on what's going on with that investigation," Sarasino said.

"Our companies want to grow here and create more manufacturing jobs. This is just slowing us down," she said of the tariffs on their industrial machinery.

"The Americans are delaying investments in capital goods as well as farming equipment, and they need that equipment if they want to reindustrialize. And also, to reindustrialize, we need to automate a lot. We need to innovate more in automation and robotics, which Germany is very good at. We need to work together, because China's coming for all of us, and if the American and European economies want to prevail, we have to do it together."

The administration, however, resents that the EU has the largest trade surplus with the U.S. of any economy, and does not find this argument wholly persuasive, even as it did lower tariffs on some industrial machinery imports.

Sarasino is telling her members that a change of partisan control in Congress won't necessarily help the tariff environment.

"They will have so many other higher priorities than trade and tariffs," she said of the Democrats.