German carmakers caught in crossfire of trade row

April 10, 2018

German carmakers BMW and Daimler are under increasing pressure to diversify production of their sports utility vehicles (SUVs) outside of the United States as a result of Washington’s growing trade tensions with China. Beijing’s proposed 25 per cent tax on US car factory exports will hit nearly 270,000 vehicles, with German carmakers accounting for $7 billion of the $11 billion total.
“This is a tax on Southern Germany, not the US,” analysts at Evercore ISI said last week. “A 25 per cent additional auto tariff would represent a $1.73 billion negative tariff impact directed at Southern Germany by China.”
BMW, the largest vehicle exporter from the United States in terms of value, has its largest factory in Spartanburg, South Carolina and faces a $965 million impact from tariffs, with Daimler exposed to a $765 million hit, Evercore ISI said.
The company makes its X3, X4, X5, X6 and X7 sports utility vehicles in Spartanburg, and the trade dispute will only add pressure to move production of volume sellers like the X5 to markets outside the United States, a senior BMW source said.
But any switch from one factory to another costs millions of euros, takes months to implement, and is taken with a long-term view, BMW board member Peter Schwarzenbauer said last month.
“We have to make decisions, like about factories in Spartanburg or factories in Mexico, which are based on a horizon of 20 to 30 years. If we were to change our strategy whenever a tweet comes out, we would get crazy,” he said.
Around 18 per cent of all BMWs sold in the world’s largest car market were exported from Spartanburg last year, a total of 100,203 cars and the carmaker warned that a further escalation of the trade row “would be harmful for all stakeholders”.
China has threatened to double tariffs to 50 per cent on imported automobiles and other US-made goods to retaliate against US President Donald Trump’s proposed tariffs on products including vehicles and automotive parts.
“The BMW Group stands for free trade worldwide: Our company has a global production network and a global sales market,” it said.
BMW this year quietly stopped exporting the X3 from the United States to China amid escalating trade tensions, moving the production footprint of the X3 to a plant in Rosslyn, South Africa and another in Shenyang, China.
“Thirty-five per cent of those (vehicles) exported to China were the BMW X3, which is no longer exported from Spartanburg to China,” BMW said. 

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