Trump threatens German car makers with 35% US tariff

US president-elect Donald J. Trump warned German car companies he would impose a border tax of 35% 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 Mr. Trump criticized German car makers like 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% tax,” he said in remarks translated into German.

FRANKFURT/BERLIN — US president-elect Donald Trump warned German car companies he would impose a border tax of 35% 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 criticized German car makers 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% 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% tax, then you can forget that,” Trump said.

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

Under pressure to deliver on campaign promises to revive US industrial jobs, Trump has turned his fire on car makers 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 car makers have invested heavily in Mexico, but also pointed out on Monday that they manufacture 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.

SERIOUS WARNING

“The president’s powers are considerable. He can legally impose tariffs of up to 15% 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 car makers have quadrupled light vehicle production in the United States over the past seven years to 850,000 units, more than half of which are exported from there, Germany’s VDA automotive industry association said.

German car makers 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 penalize German car makers, 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.

MEXICAN PLANS

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% 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.

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.

In June last year, BMW broke ground on the plant, pledging to invest $2.2 billion in Mexico by 2019 for annual production of 150,000 cars.

Daimler has said it plans to begin assembling Mercedes-Benz vehicles in 2018 from a $1 billion facility shared with RenaultNissan in Aguascalientes in Mexico. A spokesman for Daimler declined to comment on Trump’s remarks.

Last year, VW’s Audi division inaugurated a $1.3 billion production facility with 150,000 vehicle production capacity near Puebla, Mexico. Audi said it would build electric and petrol Q5 SUVs in Mexico.

Audi declined to comment on Monday. VW also declined to comment on Trump’s remarks but noted it was investing another $ 900 million in its US plant in Chattanooga, Tennessee.

Trump called Germany a great car producer, saying MercedesBenz cars were a frequent sight in New York, but claimed there was not enough reciprocity. Germans were not buying Chevrolets at the same rate, he said, calling the business relationship an unfair one-way street.

Chevrolet sales have fallen sharply in Europe since parent company General Motors (GM) in 2013 said it would drop the Chevrolet brand in Europe by the end of 2015. Since then, GM has focused instead on promoting its Opel and Vauxhall marques.

Asked by Reuters whether Trump could take any steps to make it easier for GM to sell more American-made cars in Europe, GM Chief Executive Mary Barra said the company aimed to build cars in markets where they are sold. —