Hungary's export-reliant economy is under increasing strain as sweeping new US tariffs take effect. The automotive sector, accounting for nearly 40% of Hungarian exports to the US last year, worth HUF2.3 trillion (€5.6bn), is now facing a 25% import duty under Washington's revised trade policy. The industry, which earns 90% of its revenue from exports, is particularly exposed.

According to a compilation by Valasz Online, the brunt is expected to fall on Audi's plant in Gyor, which shipped 33,000 cars to the US in 2023 and produces engines used in American-bound Volkswagen Group models. Audi's factory in western Hungary is VW's largest engine production facility globally, employing 11,400 people. The Hungarian unit closed last year with €8.6bn in revenue, a 5.4% decline from 2023.

"What remains of this volume in the US market is unclear," a person familiar with the situation said, pointing to potential restructuring across VW's operations.

Volkswagen Group has halted deliveries of newly arrived vehicles to dealerships in the United States, as it has amassed a stock of 37,000 units. Audi, which lacks local manufacturing in the US, is among the hardest hit by the tariffs, with models including the Q3, assembled in Hungary, caught in the crossfire.

Gyor mayor Bence Pinter, in an open letter, urged Foreign Minister Peter Szijjarto, a former city councillor, to leverage Hungary's ties with Washington and secure either tariff relief or economic compensation.

Mercedes with a plant in Kecskemet is also assessing the impact of the measure. Its Hungarian unit, with a headcount of 5,000, saw revenues rise 25% to €5bn in 2023. BMW, which is set to start production at its €1bn plant in eastern Hungary, has not commented.

National Economic Development Minister Marton Nagy has suggested some upside for Hungary, arguing that German carmakers may shift more production to the country to benefit from lower costs. "If they're forced to save money, they'll produce more here, where labour is cheaper," he said.

But analysts warn the opposite may happen, with European firms relocating production to the US to avoid tariffs entirely. Mercedes has already announced plans to expand its Alabama plant.

Beyond cars, the pharmaceutical sector and agricultural exporters are also in the firing line, according to analysts. Further duties on European pharmaceuticals, still under discussion, could worsen Hungary's growth outlook.

The impact of tariffs could shave off 0.5pp of Hungary's GDP this year, with the official forecast standing at 2.5%, revised from 3.4% last month, Peter Akos Bod, former central bank governor, warned, adding that this forecast is still overly bullish. Analysts have cut back their forecasts. Before the US measures, analysts put Hungary's 2025 GDP at around 2% and in its latest macroeconomic update, the National Bank downgraded its projection to 1.9-2.9% from 2.6-3.6% in December. Policymakes also noted that a full-blown trade war, a worst-case scenario, would cut 0.5pp off GDP in 2025.

Bod Peter added Hungary could face downgrades due to its large dependence on exports and broad-based tax cuts unveiled by the government ahead of elections, expected to leave a huge gap in the budget. Credit rating agency S&P will issue the first rating review on April 11.

The broader macro picture for Hungary is already deteriorating. Industry remains in a downturn in the first two months of the year, falling to levels last seen during the 2020 Covid lockdowns. Manufacturing sub-sectors – from transport equipment to electronics – showed broad-based weakness, with order books and employment confidence both deteriorating.

Hungary's export-driven automotive sector looks unlikely to rebound this year, ING Bank writes, adding that new export capacities in EV battery and car production are facing delays – possibly into 2026 – and fresh headwinds from US tariffs on European vehicles. The construction sector also kicked off the year with a decline and the outlook remains gloomy due to the suspension of EU funds and budget squeeze.

In February 2025, Hungarian exports to the EU, accounting for 75% of the total, fell nearly 8% y/y, and the trade balance narrowed to €520mn.

A study by Vienna's WIIW institute found Hungary is the sixth hardest-hit country globally by the new tariffs – after Mexico, Canada, Japan, Slovakia and South Korea. Hungary's total export loss is estimated at 0.37%, almost three times the EU average. Long-term effects could see the loss rise to 0.459% due to knock-on declines in European industrial output.

Economist Dora Gyorffy warned that the indirect fallout could prove even more damaging, particularly if mounting global uncertainty begins to chill investment. "Hungary's heavy reliance on exports makes it especially vulnerable and the unpredictability of Trump's trade policy only heightens these risks. The rise in US interest rates could prompt investors to shift from Hungarian bonds in favour of safer assets," she added.

The tariff war may also redirect global supply chains toward Europe and the continent could become the main destination for Asian manufacturers squeezed out of US markets. "Europe is the only market left with the purchasing power to absorb the overflow," a source told Valasz Online.

Chinese electric carmaker BYD's decision to build a plant in Szeged, southern Hungary, is the direct result of this shift. BYD vice-president Stella Li told financial website Portfolio.hu that construction is in full swing and production could start before the end of 2025 with annual capacity of 150,000. In the second phase of the investment, capacity will be bumped up to 300,000.

To address the impact of US measures, Marton Nagy convened the Chambers of Commerce Co-ordination Forum for the second time this year. The event was attended by Hungarian industrial and emplyer groups, the American Chamber of Commerce Hungary, and the German-Hungarian Chamber of Industry and Commerce joined by representatives from some of the country’s largest foreign investors, including Audi, Mercedes-Benz, BMW, Bosch, Denso and GE. 

Viktor Orban, who has put all his stakes on the Republican candidate, cheered Donald Trump's return to the White House, saying it will bring a golden period for Hungary with renewed political and economic ties and the influx of investments. So far Hungary's veteran leader has been silent on the issue of US tariffs, leaving his foreign minister to do the task of blaming European leaders for not reducing tariffs to appease Trump.

However, the economic costs for Hungary will be harder to ignore as time goes by, Bod Peter said, adding that Orban's vision of a 'year of breakthrough' is "increasingly overshadowed by dark clouds."