Daimler first to predict hit to its profits from trade war
U.S.-assembled SUVs to be hurt by China tariffs
DETROIT/TOKYO • Daimler AG became the first prominent company to cut its profit outlook due to escalating trade tensions between the U.S. and China, claiming Chinese customers will now buy fewer cars after Beijing slaps tariffs on U.S. auto imports.
The maker of MercedesBenz cars said late Wednesday its full-year earnings excluding some items will be slightly lower than last year.
Many SUVs are built in Alabama and then shipped to China. Those vehicles are now caught up in retaliatory tariffs announced in China in response to President Donald Trump’s levies on US$50 billion in Chinese goods.
With the rising prospect of an all-out trade war, few industries will be spared and more companies may have to follow Daimler, said Nicholas Smith at CLSA Securities in Tokyo. MillerCoors, the maker of Miller Lite and Coors Lite, warned last week that U.S. tariffs on aluminum imports could result in a US$40 million hit to its bottom line.
Shares of German carmakers fell on Thursday. Daimler ended the day down 4.3 per cent in Frankfurt trading — among its biggest declines in recent weeks.
BMW AG, which exports vehicles to China from its plant in Spartanburg, S.C., slid 3.1 per cent. Volkswagen AG, which has limited China-U.S. trade exposure, slipped 2.8 per cent.
“Taking the cynic’s view, I think there will be a lot of companies needing to cut sales forecast and this will be an incredibly convenient reason to blame it on,” Smith said. “The Europeans will take a hit on this, the Chinese are going to find this very bumpy and it’s in the nature of a trade war that everyone loses.”
Daimler’s competitors were less eager to draw conclusions, and some analysts suggested its warning might be premature. A VW spokesman said the company’s 2018 profit targets remain unchanged. BMW said that while it was monitoring developments, it too stood by its outlook.
Munich-based BMW, second to Mercedes among luxury carmakers, last year exported more than 100,000 sport utility vehicles to China from the U.S. While that number will decline this year with BMW moving to produce its X3 SUV in China, it will continue to export the high-end X5.
It is exposed to a potential earnings hit of 100 million euros (US$115 million) to 200 million euros, according to Juergen Pieper at Bankhaus Metzler.
The tariffs announced by Trump, and China’s in-kind response, may just be a start in the escalating conflict. On Monday, Trump said he had instructed the U.S. Trade Representative’s office to identify US$200 billion in Chinese imports for additional tariffs of 10 per cent.
He said the U.S. would impose tariffs on another US$200 billion after that if Beijing retaliates.
The range of products that could eventually be taxed by Trump is approaching the value of all U.S. imports from China last year — about US$505 billion.
On Thursday, a Chinese commerce ministry spokesman reiterated that China is “fully prepared” to respond to any new list of U.S. tariffs on Chinese exports.
The rising tensions threaten to upend a global production system built over decades.