Think local German carmakers to Trump: Bring on the import duties

The US president has threatened European automakers such as VW, BMW and Daimler with a levy. He’s forgetting that the Germans have huge plants in the US.
German engineering, made in the US. BMW / DPA

Depending on whom you ask, Donald Trump sounds like a broken record or he is sticking to his promises.

When the US president threatened to slap a tax on European cars imported to the US on Saturday, he echoed a comment from January last year. At the time, he warned that BMW and other carmakers could face a 35 percent import duty for cars not built in the United States. He targeted BMW because it is building a new plant in Mexico.

His remarks last year caused the stocks of BMW, VW and Mercedes-maker Daimler to fall. The same happened on Monday, with shares losing as much as 2.4 percent, although almost all blue-chip shares fell in Europe amid fears of a trade war between the US and the rest of the world.

Mr. Trump repeated his threat on Saturday after European Commission President Jean-Claude Juncker said the European Union could impose tariffs on US imports, including Harley-Davidson motorcycles, American whiskey and Levi’s jeans.

The US president’s threat, however, ignores one crucial point: Of 1.3 million German cars sold in the US last year, more than 800,000 were made on American soil, according to data from the German car lobby VDA.

BMW’s largest plant on the planet is based in Spartanburg, South Carolina, and exports cars from the US to other countries. VW operates a factory in Chattanooga, Tennessee, while Daimler makes Mercedes-Benz cars and vans in Tuscaloosa, Alabama and Charleston, South Carolina. Daimler's passenger cars are shipped from the US around the globe. The automaker also produces trucks in several US locations and sells them under the brands Freightliner, Western Star and Thomas Built Buses.

German manufacturers shipped almost half a million cars to the United States and these vehicles would be subjected to an import levy if a fully-fledged trade war were to happen. The value of German passenger car exports to the US amounted to $20.5 billion last year. There's no denying that carmakers would suffer if these sales were significantly affected.

VW could be hardest hit, because its luxury subsidiaries Audi and Porsche do not produce cars in the US. On the other hand, if you can afford $91,100 for a 911 Carrera, do you really care about spending a few thousands more after a levy?

Due to local US production, an import duty on cars made in Germany would not hit the carmakers as hard as the headline numbers suggest. If Mr. Trump decided to tax German imports, the automakers could boost production in their US plants.

Or they might take the back door and import more cars from Mexico, where they also operate sprawling factories. As long as the North American Free Trade Agreement with Mexico and Canada is in place, those vehicles will cross the border without much hassle.

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Lukas Bay is an editor with Handelsblatt's companies and markets desk and covers primarily the car industry. To contact the author: [email protected]