U.S. President Donald Trump's erratic approach to tariffs is causing some smaller European companies to question the benefits of expanding in the U.S. market - a sign of how tough it has become to navigate trade in the world's top economy.

By putting levies on everything from steel and cognac to cars and sandals, Trump aims to prompt foreign firms to move investment to the United States, building new factories and creating thousands of American jobs.

While major corporates from the auto and pharma sectors, have rushed to announce expansions or say they are considering them, the stream of announcements, roll-backs and exemptions has left some smaller firms warier of committing.

Italy's EuroGroup Laminations currently pays no tariffs on the rotors and stators it supplies to U.S. automotive customers, including Ford and GM, from its plant in Mexico as they comply with existing import rules.

But even if it had to, moving production to the U.S. would expose it to tariffs in place on the special type of steel the company uses in its automotive parts, CEO Marco Arduini told Reuters.

"Skipping potential U.S. tariffs ... would not necessarily mean it can compensate for extra costs and low availability of steel," he said, adding that U.S. labour costs, which are up to six times higher than in Mexico, were also an issue.

German fan and motor maker ebm-papst has put on hold plans to build a third U.S. factory or expand one of its existing U.S. sites due to current developments, including the risk that the tariffs will trigger a U.S. recession.

"If there is an economic downturn in the U.S., demand may develop differently as a result," CEO Klaus Geissdoerfer said.

Small- and medium-sized enterprises (SMEs) are the backbone of many economies, including Italy and Germany, both European Union members and major exporters to the United States.

Because they have smaller financial buffers than blue-chip peers, they may react to fresh trade risks more quickly than bigger companies.

"Contrary to Donald Trump's hopes, his protectionism will not lead to more German companies moving to the U.S. and creating jobs there," said Marc Tenbieg, head of the DMB association that represents Germany's SMEs.

DMB in separate comments said a handful of SMEs, which declined to be named due to the sensitivity of the matter, are also currently reviewing their U.S. businesses as a result of Trump's policies.

Some member firms of German engineering association VDMA are delaying purchases, Andrew Adair, the group's trade policy advisor for North America, said following a trip to the United States earlier this month.

"Industry appears to be pressing the pause button at the moment," he said.

After weeks of threats, Trump announced on April 2 a series of broad tariffs on goods imported to the United States from most other countries. They included a 20% tariff on EU imports that was later lowered to 10% under what he called a 90-day pause following a rout in U.S. assets.

Trump's declarations that other countries have been "screwing" the U.S. for years - reflecting his ire at U.S. trade deficits, including one of $235.6 billion with the 27-nation EU - have also raised the political and diplomatic temperature.

Germany's LAPP, which makes everything from cables and wires to robotics for factories, is nevertheless sticking with plans to double production capacity at its New Jersey site in 2025.

"As a family business, we plan for the long term, not for election periods," CEO Matthias Lapp said.

One major uncertainty is what tariffs will do to demand and inflation within the United States.

RBC Capital reckons that 10% of U.S. consumption is based on imports and that it will therefore be "relatively difficult for consumers to substitute away from imported goods".

But consultancy AlixPartners reckons average U.S. household discretionary spending will fall by more than 10% to $27,000 in a post-tariff world, and recommends that companies adopt a "pause & monitor" approach.

In each of the last three years, the EU on average exported more than 500 billion euros of goods to the U.S., mostly pharmaceuticals, vehicles and machinery, Eurostat data shows.

Trump has taken aim primarily at the bloc's makers of steel, autos and car parts.

While the U.S. remains the EU's biggest trading partner, the tariffs have triggered some political pushback against taking on greater exposure, with French President Emmanuel Macron asking European firms to suspend planned investment for now.

Industry groups are urging European companies to focus instead on other foreign markets such as India, Latin America and Southeast Asia.

"We have seen that the situation can change quickly overnight," said Sebastian Zank, head of corporates ratings production at credit ratings agency Scope.

"Everyone will keep their feet still until a picture emerges that can be described as sustainable."

Reuters

Some European companies question US expansion amid tariff chaos