Business First Look

German auto stocks slip as Trump threatens tariffs

In a Sunday interview, Donald Trump threatened to impose a 35 percent tariff on imported cars, criticizing German automakers for not making more of their vehicles in the United States.

In this June 12, 2013, file photo, workers assemble Volkswagen Passat sedans at the German automaker's plant in Chattanooga, Tenn.
Erik Schelzig/ AP/ File | Caption

In an interview on Sunday with German newspaper Bild, President-elect Donald Trump threatened to impose a 35 percent border tax on vehicles exported to the US from Mexico, criticizing German carmakers for not making more of their vehicles in the United States.

"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, according to Reuters.

While Trump specifically singled out BMW, major car producers Daimler and Volkswagen have also invested heavily in Mexico, developing manufacturing plants for building and assembling vehicles geared towards the US and international markets.

BMW intends to have a plant in the central Mexican city San Luis Potosi build their 3 series cars from 2019 onwards, cars that are intended for the world market, a spokeswoman told Reuters. Daimler has plans to assemble Mercedes-Benz vehicles at a $1 billion plant shared with Renault-Nissan in Aguascalientes, Mexico, while Volkswagen is increasing production of their Tiguan SUVs out of a facility in Puebla.

Following Mr. Trump’s comments, German auto stocks took a hit, with BMW and Daimler shares dropping 1.5 percent, and Volkswagen down 2.2 percent.

Despite the German automakers’ forays into Mexico-based production, all three automotive companies have significant operations within the United States.

Since 1997, Daimler has produced Mercedes-Benz automobiles at a plant in Tuscaloosa, Alabama, where in 2015 the company announced it would invest $1.3 billion in order to increase output.

Meanwhile, BMW’s factory in Spartanburg, South Carolina is currently one of the largest vehicle exporters in North America, Bloomberg reports. In 2016 the plant produced more than 410,000 cars, and the company plans to invest another $1 billion to expand output to 450,000 vehicles annually.

Volkswagen is investing $900 million in its plant in Chattanooga, Tenn., it told Reuters.

German carmakers employ about 33,000 people in the US, and German automotive suppliers employ about 77,000, according to the VDA, a German auto industry association. 

"We take the comments seriously, but it remains to be seen if and how the announcements will be implemented by the U.S. administration," Matthias Wissmann, the president of the VDA, said in an emailed statement to Bloomberg. He added that he believes Congress will show "substantial resistance" to the proposed tariffs. 

However, hoping American legislators won't support such heavy import taxes may not be enough. 

"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," Simon Evenett, a professor of international trade at Switzerland's University of St Gallen, told Reuters. "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.”

Trump has also threatened American automakers, saying he would impose a border tax on cars made in Mexico. Last week, American auto-giant Ford canceled plans to build a new plant in Mexico, deciding instead to invest $700 million in Michigan, creating 700 new jobs.

Fiat Chrysler has also announced plans to invest in its midwestern plants, with a $1 billion project to modernize factories in Ohio and Michigan, creating 2,000 additional jobs.

This report contains material from Reuters.