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BMW and Mercedes Say Thank You to Donald Trump

Chinese import duty cut will benefit local luxury consumers, as well as Germany’s car giants.

BMW and Mercedes Say Thank You to Donald Trump
A Vision Mercedes-Maybach 6 Cabriolet luxury automobile sits on display during the Daimler AG shareholder meeting in Berlin, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

(Bloomberg Opinion) -- Two of the biggest beneficiaries of US president Donald Trump’s drive to get China to “play fair” on trade are – wait for it – wealthy Chinese people and Germany’s automakers. 

On Tuesday, China confirmed a Bloomberg News report that it plans to lower tariffs on imported passengers cars to 15 percent, from 25 percent. There was a time when this would have been huge news for foreign carmakers. But most, including General Motors Co. and Ford Motor Co., have long since established extensive local production there. Tesla Inc. is the exception. 

BMW AG, Toyota Motor Corp., Daimler AG and Volkswagen AG import by far the most cars to China but none exceeds 250,000 annual units, according to a recent Bloomberg Intelligence analysis. Ford and Fiat Chrysler Automobiles NV account for just 115,000 units between them.

These imported vehicles are overwhelmingly high-end sedans and SUVs, which tend to contain those companies’ most prized technology. As a result, they have big sticker prices – which the import tariffs ratcheted up even further.

So the decision is certainly good news for German and Japanese carmakers. Arndt Ellinghorst at Evercore ISI estimates the duty cut would have boosted BMW’s operating profit by about 13 percent last year, while Daimler would have enjoyed a 6 percent uplift

BMW and Mercedes Say Thank You to Donald Trump

Still, in reality they probably won’t get to keep all that benefit because wealthy Chinese car buyers will now expect better deals.

The outcome for foreign carmakers – good, but not earth-shattering – is similar to the benefits from China’s decision to phase out a rule requiring them to enter local joint ventures. Most indicated that they wouldn’t make much use of the rule change because of the massive investments they’ve already made in shared local production. 

With a 15 percent tariff still in place, foreign carmakers are unlikely to shift more production for the Chinese market back to Europe or the U.S., something Beijing doubtless factored into its decision.

Trump has been very critical of the German auto industry for what he perceives to be unfair trade practices: European duties on imported U.S. vehicles are higher than the other way around. Missing from that “analysis” was an acknowledgement that the Germans produce hundreds of thousands of cars in the U.S., many for export to China. 

China’s import duty cut is therefore good for American workers, in the sense it makes those U.S. factories more secure. Still, the irony that Trump’s saber-rattling on trade appears to have done German carmakers a favor won’t have gone unnoticed in Munich and Stuttgart.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

©2018 Bloomberg L.P.