Daily Management Review

Threat of Imposition of 35 percent U.S. Import Tariff Given by Trump to German Carmakers


01/16/2017




Threat of Imposition of 35 percent U.S. Import Tariff Given by Trump to German Carmakers
A warning of a border tax of 35 percent on vehicles imported to the U.S. market for German car companies was issued by United States President-elect Donald Trump. This warning however drew sharp rebukes from Berlin and hit automakers' shares.
 
Trump criticized the German carmakers for failing to produce more cars on U.S. soil in an interview with German newspaper Bild, published on Monday.
 
"If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35 percent tax," Trump said in remarks translated into German.
 
"I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35 percent tax, then you can forget that," Trump said.
 
Volkswagen shares fell 2 percent, and shares in Daimler and BMW both fell 1.8 percent by 1033 GMT.
 
Mexico has turned out a growing production center where costs are lower and Trump has turned his fire on automakers who manufacture cars there. If Japan’s Toyota builds its Corolla cars for the U.S. market at a planned factory in Mexico, it could be subject to a "big border tax", he has warned.
 
With an eye to exporting smaller vehicles to the U.S. market, all three German carmakers have invested heavily in factories in Mexico.
 
The German VDA automotive industry association said that touching a total of 850,000 units, in the past seven years German carmakers have quadrupled light vehicle production in the United States.  More than half of which are exported from there.
 
"In the long term, the United States would be shooting itself in the foot by imposing tariffs or other trade barriers," VDA President Matthias Wissmann said in a statement.
 
The U.S. should instead respond by building better and more desirable cars rather than trying to penalize German carmakers, German Economy Minister Sigmar Gabriel said speaking in tabloid newspaper Bild.
 
Berlin needed to take Trump's comments on the possible border tax seriously, said Norbert Roettgen, head of Germany's foreign affairs committee.
 
"He seems to be absolutely focused on short-term job interests and security interests ... not that he is looking for free trade so much, but more for protection," Roettgen said.
 
Mercedes-Benz and BMW build higher-margin sports utility vehicles (SUVs) for export to Asia and Europe and already have sizeable factories in the United States.
 
"It is surprising that Trump singles out the carmaker that exports more vehicles from the United States than any other manufacturer," analysts at Evercore ISI said.
 
With the output intended for the world market, a BMW Group plant in the central Mexican city of San Luis Potosi would build the BMW 3 Series starting from 2019, a BMW spokeswoman said. The company has 3 Series production facilities in Germany and China already and the plant in Mexico would be an addition to them.
 
From a $1 billion facility shared with Renault-Nissan in Aguascalientes in Mexico, Daimler plans to begin assembling Mercedes-Benz vehicles in 2018, the company said.
 
Volkwsagen pointed out it was investing another $900 million in its U.S. plant in Chattanooga, Tennessee but declined to comment on Trump's remarks.
 
(Source:www.reuters.com) 






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