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 in Germany and China, and South Africa, where production is being phased
out. 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 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.
