President-elect Donald Trump tweeted again at the weekend on the auto industry, this time saying that German automakers should assemble more cars in the United States if they wanted to do business in country.
"Car companies and others, if they want to do business in our country, have to start making things here again. WIN!" Trump tweeted.
The latest tweet followed others that had prodded , GM and , saying they should assemble in the US or face "border" taxes on imported vehicles.
Ford has recently cut some investment in Mexico, although whether that was really due to Trump's prodding or simply because the firm was anyway reducing its exposure to the small car segment is an open question.
In other comments, in an interview with the German newspaper Bild published today, Trump warned the US could impose a border tax of 35 per cent on cars that BMW plans to build at a new plant in Mexico and export to the US market.
"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 per cent tax," Trump stated in comments which appeared in German.
"I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35 per cent tax, then you can forget that" he added.
He said that BMW should build its new plant in the US because this would be "much better" for the company.
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Trump has previously warned Toyota that it could be subject to a "big border tax" if it builds its Corolla model for the US market at a planned plant in Mexico.
has said that its San Luis Potosi plant in Mexico will build the BMW 3 Series from 2019, and export them globally. The new plant in Mexico would add to 3 Series production capacity in Germany and China.
If anything, the new plant in Mexico might take jobs from those plants and create demand for some components from the United States (and hence jobs in the US).
He went on to say Germany was a great car producer, with Mercedes Benz cars being a common sight in New York, but that Germans were not buying Chevrolets at the same rate, making the business relationship an unfair, one-way street.
BMW didn’t seem fazed by Trump’s latest comments. An executive stated that the firm would stick to plans to invest some US$1bn in Mexico, creating 1,500 jobs. Toyota seemed similarly unbothered when prodded by Trump recently.
And the new president-elect’s tweets show something of a lack of understanding of the modern auto industry.
The Mercedes-Benz being driven in New York could have been assembled in Alabama, and a BMW being driven in San Francisco could have been assembled in South Carolina. Similarly Volkswagens could have been made in Tennessee (maybe not diesels anymore after VW gate killed the nascent diesel market in the US. Components in those cars could have come from North America or further afield as value chains increasingly cross borders.
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Indeed, the German’s automotive industry association the VDA has been at pains to stress that German carmakers have quadrupled car output in the US over the past seven years to 850,000 units, more than half of which are exported. It also pointed out that German carmakers employ about 33,000 workers in the United States and German automotive suppliers about 77,000 more.
The VDA President Matthias Wissmann stressed that “in the long term, the United States would be shooting itself in the foot by imposing tariffs or other trade barriers.”
BMW itself noted that the firm is “very much at home in the US," employing directly and indirectly nearly 70,000 people in the country.
Meanwhile, Germans might not drive many of those Chevrolets (owned by GM) that Trump mentioned, but they do drive lots of Opels (also owned by GM), Fords , and cars made by Fiat Chrysler . Indeed, Jeeps are an increasingly common sight on European roads.
Nevertheless, Trump’s latest comments raise uncertainty for auto makers that could impact on their strategic decisions in a quite a big way.
While the US Constitution gives the President authority to negotiate international agreements, it doesn’t assign him specific power over international commerce and trade. Rather, the Constitution gives Congress the power to impose and collect taxes, tariffs, duties, and to regulate international commerce (for a good summary see ).
However, through legislation, Congress can and does delegate some of its power to the President, such as the power to change tariffs under certain circumstances. So the President is able to look for authority for tariff related action in statute.
In general, the President, acting unilaterally via executive action, can impose tariffs of up to 15% and for 150 days, and a challenge to such action can take months to be effective.
An example of Presidential action I use with my first year Political Economy students is the decision by George Bush to imposed heavy tariffs on steel imports into the US back in 2002 in order to ‘safeguard’ the US steel industry. After complaints from a range of countries, the WTO eventually ruled the tariffs to be in breach of WTO Treaty obligations (as there had been no surge in imports).
Eventually Bush ended the tariffs but not until it had given several years of protection to the US steel industry and cost European producers hundreds of millions of Euros in lost exports to the US that they never recovered. It may have also brought Bush plenty of steel workers’ votes in the process, but pushed up production costs for (ironically) US auto makers.
The point is that while the WTO can ultimately rule that any new tariffs breach WTO rules and should be removed (or reciprocal measures taken), there is scope for Trump and his advisors to create plenty of challenges for major auto firms in the short to medium term.
Quite what Trump and his trade advisers decide to do once in office is therefore the big question. One possible target is a tariff on imported components (China dominates the aftermarket component business in the US now, for example) or even an attempt to get China to agree to voluntary export restraints in this area. How China reacts is another matter, of course.
* Professor David Bailey works at the Aston Business School