Trump threatens German carmakers with 35% import tariff

US PRESIDENT-ELECT Donald Trump warned German car companies he would impose a border tax of 35 per cent on vehicles imported to the US market, a plan that drew sharp rebukes from Berlin and hit the automakers’ shares.

In an interview with German newspaper Bild, published on Monday, Trump criticised German carmakers such as BMW, Daimler and Volkswagen for failing to produce more cars on US soil.

“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 per cent 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 per cent tax, then you can forget that,” Trump said.

Volkswagen (VW) shares closed down 2.2 per cent, while BMW and Daimler’s shares ended 1.5 per cent lower.

Under pressure to deliver on campaign promises to revive US industrial jobs, Trump has turned his fire on carmakers that use low-cost Mexican plants to serve the US market. He has also warned Japan’s Toyota it could be subject to a “big border tax” if it builds its Corolla cars for the US market at a planned factory in Mexico.

All three German carmakers have invested heavily in Mexico, but also pointed out on Monday that they manufacturer in the United States as well.

BMW executive Peter Schwarzenbauer told reporters the company was sticking to plans to invest around $1 billion in a new plant in Mexico, which is due to go into production in 2019 and create at least 1,500 jobs.

“The president’s powers are considerable. He can legally impose tariffs of up to 15 percent for 150 days. Trump is not constrained by Congress,” said Simon Evenett, professor of international trade at Switzerland’s University of St Gallen.

“Even if foreign companies object and seek to challenge the legality of tariffs, it will take at least 18 months to get decided. Corporate strategies will be disrupted by then.”

While investing in Mexico, German carmakers have quadrupled light vehicle production in the United States over the past seven years to 8,50,000 units, more than half of which are exported from there, Germany’s VDA automotive industry association said.

“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.

German carmakers employ about 33,000 workers in the United States and German automotive suppliers about 77,000 more, the VDA said.

Speaking in tabloid newspaper Bild, German Economy Minister Sigmar Gabriel said that rather than trying to penalise German carmakers, the United States should instead respond by building better and more desirable cars.

Norbert Roettgen, head of Germany’s foreign affairs committee, said Berlin needed to take Trump’s comments seriously. “He seems to be absolutely focused on shortterm job interests and security interests ... not that he is looking for free trade so much, but more for protection,” he told Reuters.

Daimler’s Mercedes-benz and BMW already have sizeable factories in the United States where they build higher-margin sports utility vehicles (SUVS) for export to Asia and Europe.

Around 65 per cent of BMW’S production from its factory in Spartanburg, South Carolina, is exported overseas. BMW builds the X3, X4, X5 and X6 models 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,” Evercore ISI analysts said.

A BMW spokeswoman said the planned plant in the central Mexican city of San Luis Potosi would build the BMW 3 Series from 2019, with the output intended for the world market. The plant would be an addition to existing 3 Series production facilities in Germany and China.