President Donald Trump has again singled out German carmakers as part of his continued threats to impose protectionist trade measures. In a speech in Pittsburgh, Pennsylvania, Mr. Trump called on the European Union to “open up the barriers and get rid of your tariffs. And if you don’t, we’re going to tax Mercedes-Benz, we’re going to tax BMW.”
Mr. Trump claims that the EU benefits from unbalanced trade rules. On Saturday, he posted on Twitter: “If they [the EU] drop their horrific barriers & tariffs on US products going in, we will likewise drop ours. Big Deficit. If not, we Tax Cars etc. FAIR!”
Duties on cars imported into the United States are currently 2.5 percent, less than the EU’s 10 percent. But the imbalance goes the other way on trucks and pick-ups.
In response, the German car industry has reminded Mr. Trump that, of the 1.3 million German cars sold in the United States in 2017, some 800,000 were manufactured domestically. Bernhard Mattes, president of the German auto industry association VDA, told Handelsblatt: “Every second car produced by German carmakers in the United States is exported to non-NAFTA countries.”
BMW is America's biggest exporter of cars.
Speaking at the Geneva Motor Show, Harald Krüger, BMW’s boss, pointed out that his company is America’s biggest exporter of cars. By 2019, BMW’s factory in South Carolina will be the company’s largest production facility anywhere in the world, he added. Its rival Mercedes-Benz, owned by Germany’s Daimler, rolls vehicles off assembly lines at plants in Alabama and South Carolina.
Both German auto executives and Chancellor Angela Merkel’s government hope that Republican representatives from southern states may vote against tariffs in Congress, or that Mr. Trump’s may have one of his frequent changes of mind. Acting Economy Minister Brigitte Zypries told Handelsblatt that the tariffs Mr. Trump plans to introduce on steel and aluminum imports on March 23 might work in the short term, but in the long run they would raise prices and cost American jobs.
Experts are unsure of the impact of Mr. Trump’s tariffs on German industry, given the robust health of the general economy. “We don’t expect the immediate impact of these tariffs to slow the economy or hit stocks,” said Chris-Oliver Schickentanz, head of bond strategy at Commerzbank. He added that aluminum and steel represented only a very small proportion of overall US trade.
There may even be some benefits to Germany’s car industry. Kasia Kiladis, an American stock expert at Fidelity International, said tariffs could mean cheaper steel for automakers if European suppliers divert production to the domestic market. But if trade tensions spread, pushing up inflation and possibly forcing interest-rate rises, the impact might quickly be felt in the broader German economy, she added.
“Mr. Trump is using tariffs as leverage, in order to force other countries to do what he says.”
Mr. Trump has emphasized the security aspects of the tariffs, suggesting he may seek concessions in areas including NATO defense spending, in return for allowing countries favored status on tariffs. “Mr. Trump is using tariffs as leverage, in order to force other countries to do what he says,” said Ms. Zypries. She said US trade balances did not result from trade barriers, but often from lack of competitiveness on the part of US firms. Last year, America imported nearly 50 percent more from the EU than vice versa (see graphic below).
The American president’s latest threats toward Germany’s car industry could easily upset the modest progress in discussions on Chinese steel production. “If Japan and we don’t get an exemption, it wouldn’t be a good basis for further talks,” said one EU diplomat.
Till Hoppe is a Handelsblatt correspondent in Brussels, covering EU issues, while Annett Meiritz is a US correspondent in Washington, DC and Donata Riedel covers economic policy. Brían Hanrahan and Jeremy Gray adapted this story into English for Handelsblatt Global. To contact the authors: firstname.lastname@example.org, email@example.com and firstname.lastname@example.org