The German automotive industry under the Trump spell

US President Donald Trump shakes hands with German Chancellor Angela Merkel. The French President Emmanuel Macron looks on. More than 70 world leaders went to Paris for the Centennial of the 1918 Armistice Day ceremony on Sunday, November 11, 2018. (Official White House Photo by Shealah Craighead).

Last week, the White House invited, or better summoned, the leaders of the German automotive industry to Washington D.C., in order to confer on the ‘problem’ of the missive imports of German cars in the US. The American President Donald Trump, in his belligerent line aggressively reshaping the American foreign trade policy with China and Europe, has threatened to impose super tariffs of 25% on US imports of cars assembled in Europe, that is, in Germany. Actually, no other EU country is exporting noticeable numbers of automobiles to America, France included.

The trade skirmishes started last March with the US imposing super import levies on steel and aluminum products. The Europeans answered with extra tariffs on a long list of American products, but of a small overall value of €2.6 billion. Then, the White House threatened to retaliate with tariffs on imports of vehicles assembled in Europe. Last July, though, after Trump met with the European Commission President Jean-Claude Juncker in Washington D.C., the White House said it withholds the imposition of the super levy on cars for a few months.

After that, the White House tried to ‘convince’ the Europeans to introduce self imposed restrictive quotas. Brussels, however, swiftly rejected this prospect. That’s why the US administration now wants to settle the issue, starting by terrorizing the automotive leaders.

Terrorizing the German car sector

Unquestionably, the American administration under Trump longs for a sweeping reduction of imports of European, aka German, cars. Reportedly, the ‘invitation’ to the German leaders of the automotive industry has as main objective some kind of self imposed restrictions. As a matter of fact, though, the CEOs of Volkswagen, Daimler and BMW cannot negotiate any official or ‘private’ trade deal with the Americans.

This falls exclusively and unquestionably under the jurisdiction of the European Commission. The German automotive taicoons can’t even negotiate a secretive unofficial agreement with the Americans. The Brussels authorities will surely find out and will refer the offenders to the European Court of Justice. Already, the German courts are issuing rulings punishing the automotive firms in relation to the diesel emissions scandal.

Punishing the automotive firms

In the latest case, the Augsburg civil court issued a decision against VW. The court said WV cheated the buyer of a WV Golf and ordered the company to reimburse the consumer with the full amount he paid for it, of around €30,000. Of course, not all legal suits in Germany against WV have turned out similar decisions. In any case, WV agreed to pay billions of dollars to settle comparable cases in the US regarding the authorities, car owners and the company’s dealers. In total, WV has proposed to buy back 500,000 polluting diesel cars, for having been fitted with illegal software.

Coming back to Washington, it’s not clear what exactly the White House may ask the German automotive leaders. The German car producers have already stated clearly they cannot discuss any trade agreement and have clarified that this pertains to Brussels. If the American administration is convinced that the German automotive CEOs cannot deliver a private trade deal, the White House will look for other means to attack the imports of German vehicles.

No mercy for German vehicles

Already, the US has severely punished the German automotive companies which assemble their products in Mexico and export them tax free to the US. This was done with the recent replacement of the time cherished NAFTA (North America Free Trade Agreement), with the new USMCA (United States, Mexico, Canada Agreement) trade deal.

The main change introduced under USMCA in the trade between Mexico and the US had to do with German cars. The cars produced in Mexico by German companies must from now on incorporate North American added value of at least 75%, in order to be exported tax free to the US. Under NAFTA, this percentage was only 62.5% and very generously estimated.

The Mexican route blocked

For at least quite some time then, this route to export German cars to the US will be blocked. The reason is that the German car factories in Mexico are simple assembly lines and do not produce engines or important components. These are imported from Germany. Thus, it’s rather impossible to fulfill the 75% condition of local added value, at least not with the present character of the German investments in Mexico.

Undoubtedly, the White House invitation to the CEOs of VW, Daimler and BMW doesn’t envisage anything good for them. For one thing, it’s not certain if Trump himself is to be present. The three firms export to the US around 650,000 cars a year, directly from German factories.

Trump’s spell

On top of that, they ship to America components used either for repairs or to assemble more cars within the US. In total, the German automotive exports to America amount to nothing less than $50 billion a year. No doubt many jobs in Germany depend on that. As a result, the White House has a strong argument vis-à-vis the German industrial leaders. Even the exports to China of German cars from US factories fall under Trump’s spell.

For sure then, the Trump administration is to press Europe’s automotive sector, with Germany being practically the only possible victim. A double digit tariff or any other barrier on automotive imports in America will hit all the German car firms, and, more particularly, Daimler. The last company’s expensive S-Class and E-Class Mercedes-Benz limos will be hardly hit by whatever levies or other trade barrier the White House may impose.