US President’s reciprocal tariff programme is giving a lot of heartburn to domestic industry and if you are a foreign brand, your life is about to get even harder.
Global carmakers have warned that if tariffs are imposed on cars bound stateside, the price tag on an imported vehicle could go up by $6,000. US imports of new cars and auto parts totalled $333bn in 2017, and represented 14 per cent of all US imports of goods in 2017, up from 12 per cent in 2007.
Tariffs will also hurt carmakers manufacturing locally as 40-50 per cent of the content in a car made in the US is imported. Hence, experts believe that President Trump’s decision-making is tilted toward auto workers even if the measures may roil US automakers.
According to business analysts General Motors and Fiat Chrysler could be hit the hardest: Their operating profits for 2018 could be cut by 40 per cent and 23 per cent, respectively. And export-oriented foreign brands too. Germany’s BMW which has a manufacturing unit in South Carolina plant caters to 30 per cent of domestic needs while it exports 70 per cent of its production to various countries including Asia and Europe.
Think-tanks at BMW have weighed pros and cons of Trump’s proposal and have come to the conclusion that it will do more harm than good.
Carmakers like BMW says that proposed tariffs will have a negative impact on the German automaker’s investments in the US. Here’s why. A 25 per cent tariff on foreign-made cars and parts that Trump fancies will lead to retaliations from China and the EU. China has already imposed a new tariff regime in response to the US proposal which is beginning to hurt imports to that market. BMW says it is not immune to such a condition. BMW’s contention is that fall in exports will give rise to redundancies and continued investment into US manufacturing will be affected.
BMW has sent a letter to US Secretary of Commerce Wilbur Ross explaining the implications. The letter states: “All of these factors would substantially increase the costs of exporting passenger cars to these markets from the United States and deteriorate the market access for BMW in these jurisdictions, potentially leading to strongly reduced export volumes and negative effects on investment and employment in the United States.”
A recent Reuters article quotes an excerpt that President Trump has used national security as the reasoning behind the tariffs. BMW addresses that in the letter as well: “The domestic manufacturing of automobiles has no apparent correlation with US national security.”
That’s not all. Top 25 global carmakers by market cap have shed about $150 billion since January. The Bloomberg World Auto Manufacturing index – it includes the 28 top vehicle makers globally, dropped to a one-year low and underperformed the MSCI World index by 7 per cent in 2018.