April 10, 2018 / 3:15 PM / 8 months ago

Breakingviews - Trump trade war risks European carmaker backfire

FILE PHOTO: U.S. President Donald Trump holds his signed memorandum on intellectual property tariffs on high-tech goods from China, at the White House in Washington, U.S. March 22, 2018. REUTERS/Jonathan Ernst/File Photo - RC1423361400

LONDON (Reuters Breakingviews) - Donald Trump’s trade war risks a German carmaker backfire. BMW and Daimler sell a surprising number of American-made vehicles in China. Were the U.S. president’s tariff-war rhetoric to become reality, carmakers could shrink U.S. production. If he wants to keep jobs rather than lose them, he should seize a new olive branch from Beijing.

The latest twist in the China-U.S trade saga came on Tuesday when Xi Jinping, the president of the People’s Republic, promised to lower the country’s 25 percent auto tariff “considerably” this year. That looks like a peace offering after the two countries’ earlier threats of higher duties, including China’s proposal of slapping an extra 25 percent charge on U.S. autos, raising the total to 50 percent.

Since German groups BMW and Daimler ship so many cars from U.S. plants to China, American workers at these plants would be most affected by such a move. BMW’s 10,000 employees at its South Carolina plant last year produced 370,000 vehicles, or 15 percent of its global total. One-quarter of these U.S.-made vehicles, mostly luxury SUVs prized by Chinese consumers, were exported to China. Mercedes-owner Daimler, whose Alabama plant employs 3,700 people, exported nearly 70,000 vehicles to China last year, Deutsche Bank analysts reckon.

That’s partly because American labour costs are lower than in heavily unionised Germany, while U.S. states have offered tax incentives to attract companies.

Those efforts may be undermined unless Trump steps down from his protectionist podium. Rather than absorb the cost of possible higher tariffs – estimated by Deutsche Bank at a combined 1.7 billion euros for Daimler and BMW – it would make sense for carmakers to shift production away from America. Foreign manufacturers have already ramped up local manufacturing through joint ventures with Chinese groups. Last year, 70 percent of the Mercedes-Benz cars sold in China were built locally. BMW will start building a popular X-series model in China this summer with domestic partner Brilliance Automotive.

That’s ironic, since one of Trump’s original grievances was that other countries’ trade practices were harming U.S. jobs and stealing technological know-how. Xi has extended a hand to Trump with the prospect of lowering tariffs; Trump’s best chance of protecting American workers is to shake it.

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