17 Jan Trump Attacks BMW and Mercedes, but Auto Industry Is a Complex Target
The New York Times, January 16, 2017
A BMW at the New York International Auto Show in 2016. After praising German manufacturing prowess in an interview with Bild, President-elect Donald J. Trump threatened to impose a 35 percent tariff on every car that BMW imported to the United States.
BEIJING — In his latest criticism of what he sees as unfair trade, Donald J. Trump has taken aim at German cars. Why, the president-elect asked a German newspaper, do so many well-heeled drivers in New York drive a Mercedes-Benz, while Germans buy so few Chevrolets?
Mr. Trump’s question could set the stage for action by his incoming administration against the likes of Mercedes-Benz and BMW, which he criticized for its plans to build a new plant in Mexico. But the president-elect’s musing shows an incomplete understanding of how globalized the auto industry has become since Ronald Reagan went after Toyota and Honda in the 1980s.
That Mercedes-Benz in New York, for example, may have been made in Tuscaloosa, Ala., depending on the model. BMW has a plant in South Carolina that exports 70 percent of the vehicles made there, it says. And Germans might not buy many Chevrolets, which are no longer sold in Germany, but they buy plenty of Opels, which, like Chevy, is owned by General Motors.
Mr. Trump has criticized other companies and industries for moving production out of the United States at the expense of American jobs, such as appliance makers and pharmaceutical companies. But the vehicle industry in general — and particularly foreign automakers, his new target — illustrate how difficult it can be to parse American from international when criticizing global trade.
BMW and Mercedes-Benz — as well as the Japanese carmakers Honda, Nissan and Toyota — employ thousands of factory workers in Alabama, South Carolina, Texas and other states. G.M. gets more than a quarter of its auto-related sales outside North America, while Ford gets a third. Chrysler was bought by Fiat of Italy. Cars of all types increasingly have Chinese parts.
Nevertheless, Mr. Trump has been making a series of ever-broader demands that the auto industry manufacture in the United States to sell in the United States.
The president-elect’s latest comments came on Sunday in excerpts from an interview with the German tabloid newspaper Bild. After praising German manufacturing prowess, Mr. Trump threatened to impose a 35 percent tariff — he called it a “tax” — on every car that BMW imported to the United States. BMW should build the factory in the United States, Mr. Trump said, where it would benefit from his plans to slash corporate taxes.
Car exports are the lifeblood of the German economy, and the United States is one of the most important markets. New trade barriers would be a serious threat to German growth and could sour relations with one of the United States’ most important allies.
“We take his comments seriously,” Matthias Wissmann, president of the German Association of the Auto Industry, said in a statement. “Restrictions in the Nafta zone would put a real damper on the economy.”
In a post on Twitter on Sunday, Mr. Trump laid out his expectations for the auto industry: “Car companies and others, if they want to do business in our country, have to start making things here again. WIN!”
The main question lies in what Mr. Trump and his trade advisers decide to do once in office, auto industry officials and trade experts said. Measures to force manufacturers to shift assembly to United States factories and to use more American-made parts could drive up prices for American car buyers and make American vehicles less competitive in world markets.
“The people who lose are the core Trump supporters, who end up buying more expensive products,” said Bill Russo, a former chief executive of Chrysler China who is now the managing director for the automotive industry at Gao Feng Advisory Company, a Chinese consulting firm.
The German carmakers are hoping that, once Mr. Trump takes office, they will be able to convince him that tariffs on vehicle imports would hurt the American economy and get him to modify his views.
“We should seek a dialogue with Trump,” Clemens Fuest, president of the Ifo Institute, a research organization in Munich, said in an email. But Mr. Fuest also expressed concern that differences over trade could escalate.
“There is a danger that his policy fails and that he subsequently starts looking for scapegoats,” Mr. Fuest said. “One such scapegoat could be the German economy.”
In some respects, Mr. Trump has a point. The United States has been more open to imports than other large automotive markets, with the result that cars shipped in from abroad represent a considerably larger share of the American market than of markets elsewhere.
European governments have effectively limited imports by putting pressure on vehicle manufacturers not to close high-cost factories or to lay off workers. The Chinese government requires foreign automakers to partner with local manufacturers and sometimes requires them to transfer technology to Chinese companies.
Still, tailoring measures against the auto industry to create jobs in the United States could be difficult. For example, BMW’s Mexico plant would produce 3 Series sedans, which are currently made only in Germany and China. Most likely, the plant in Mexico would take jobs from the factories in Germany and China and create demand for components imported from the United States.
BMW is “very much at home in the U.S.A.,” Glenn Schmidt, a BMW spokesman, said in an email. Mercedes-Benz declined to comment.
The BMW factory site in San Luis Potosí, Mexico, is already swarming with construction workers rushing to make a 2019 deadline to begin production. There is little chance BMW will change its plans and move the assembly lines to the United States.
Mr. Trump’s comments hark back to the 1980s, when the Reagan administration criticized Japan for what it called unfair trade policies in the auto business. That compelled the Japanese government to set annual limits on the number of cars shipped to the United States.
Although President George Bush allowed Japan to drop the limits soon after taking office in 1989, the fights of the 1980s taught the global industry a valuable lesson: Made in America can be a good thing. Japanese and European automakers built assembly plants in the United States, taking the edge off political battles while creating tens of thousands of jobs in the country. Building plants in the United States helped in other areas as well, such as improving the foreign automakers’ logistics and moderating the impact from turbulence in currency markets.
BMW’s largest factory anywhere in the world is in Spartanburg, S.C. It employs nearly 9,000 people and exports 70 percent of the vehicles it makes, BMW says. Daimler makes Mercedes-Benz S.U.V.s and C-Class cars in Tuscaloosa, Ala., and it is building a new factory in Charleston, S.C., to manufacture Sprinter vans, creating more than 1,000 jobs.
Daimler, which also builds Freightliner trucks in the United States, has 22 factories or research and development centers in the United States that employ 22,000 people.
Even Volkswagen has not given up on the United States despite an emissions scandal that has led to $20 billion in civil settlements and criminal penalties. The carmaker, which has long produced cars in Mexico, is expanding a factory in Chattanooga, Tenn., to manufacture a new full-size S.U.V.
G.M. and Ford, meanwhile, saw big opportunities in places like China, where rapid economic development meant more people could afford cars.
A tough stance on autos from Mr. Trump may not have the same impact as that of President Reagan. Since the 1980s, automakers have made fewer of their own parts, buying them instead from hundreds of parts suppliers based all over the globe. That means an American car assembled in the United States could still have large chunks that are manufactured abroad.
Chinese manufacturers dominate the market for replacement parts in the United States, often undercutting prices for parts from the automakers by half or more. Tariffs on Chinese parts would end up being paid by Americans who took their cars in for repairs.
“U.S. consumers are paying a good price for their aftermarket parts,” because of Chinese providers, said Yale Zhang, the managing director of Automotive Foresight, a Shanghai-based consulting firm.
Global automakers’ assembly plants have been rapidly shifting orders from parts factories in the Midwest to plants in China in the last few years. But that trend could stop or reverse if Mr. Trump imposes sizable tariffs on those imports, Mr. Zhang said.
For any move Mr. Trump makes, the devil is in the details. Options include tariffs on imported cars and possibly car parts. He could also prompt a rewrite of the American tax code so that imports — but not exports — are taxed, a move known as border adjustment.
The architect of the Reagan administration’s restrictions on Japanese car imports and of a Reagan-era law that temporarily reduced taxes on exporters was Robert E. Lighthizer. Mr. Lighthizer was deputy United States trade representative at the time. He is now Mr. Trump’s choice to become the United States’ top trade negotiator.