Trump rages against Germany AG’s US sales success, threatens action

30 May 2017

30 May 2017

It seems Trump’s blasting of foreign carmakers continues even behind closed doors.

At a private meeting on Thursday with EU officials in Brussels, Der Spiegel reports a very diplomatic Trump renewed his rampage against German OEMs to the highest officials in the union.

In sentiments confirmed by European Commission President Jean-Claude Juncker, Trump reportedly lambasted: ′The Germans are bad, very bad. Look at the millions of cars that they sell in the U.S. Terrible.

′We’re going to stop that.’

The foreboding of this last remark suggests a renewal of the attacks Trump made against foreign carmakers earlier this year, including threatening BMW with a ′big border tax’ of 35% on imported cars if it goes ahead with its planned investments in Mexico.

It is unclear what exactly Trump could do to prevent the relentless rising German auto success in the US, with the US trade deficit widening to the most since March 2012 in January, and looking set to continue. Germany carmakers are not the only ones flourishing in the country, with Japanese OEMs dominating sales in many smaller car segments – another outlet for his attacks.

Trump lamented at the time to Bild: ′If you go down Fifth Avenue everyone has a Mercedes-Benz in front of his house.’  He also pointed to US carmaker General Motors having abandoned its 2005 ambitions to make Chevrolet its main global brand, with the withdrawal of Chevrolet from Europe in 2016 after poor sales. General Motors has now withdrawn from Europe completely.

Responding to Trump’s renewed criticisms, Germany’s VDA pointed out that US deliveries from Daimler (including Mercedes), BMW and Volkswagen last year reached 1.33 million vehicles, a drop of 4% year on year. Analyst Ferdinand Dudenhöffer has also highlighted that the share of US cars in Germany is actually higher than vice versa, undermining Trump’s arguments.

Despite coming from foreign OEMs, many of these cars are made in the US, although the proportion made in Mexico for import is growing. BMW also is quick to point out that the group’s biggest plant globally lies in South Carolina in Spartanburg, which is also a major international export plant for the group, and makes BMW no less than the top exporter of US-built vehicles around the globe by value.

Under World Trade Organisation rules, since the US still does not have a preferential trade deal with the EU, if the US were to erect trade barriers against Germany, it would have to do the same against every country it does not have a preferential trade deal with. This would undoubtedly harm the US economy more than Germany, which would have more difficult access to only the US. The US is not even Germany’s biggest single auto export market any more, with China now taking the lead.

Trump’s main weapon therefore is attacking operations of carmakers (including US OEMs) through proxy in US neighbour Mexico, which 2015 figures reveal has been the source of the entire 100% of auto industry growth on the North American continent since 1994. Mexico has more trade agreements than the US, giving it a major competitive advantage compared to the US in an increasingly globalised world. Lower wage costs in Mexico are not as big a factor as one might imagine, with these largely being cancelled out by poor infrastructure-related costs.

This successful Mexican export model does however, according to analysts, depend on a large number of sales to the US. While still inadvisable, Trump does therefore have a potential lever on the current globalised model he rails is damaging the US. He could potentially scrap the North American Free Trade Agreement (NAFTA) between Canada, the US and Mexico (signed in 1994), which he (with a degree of truth) criticises has disproportionately benefitted Mexico through taking all the American continent’s auto growth below the border.

However, whether Trump would really take the audacious step of scrapping NAFTA is unclear, and such a move would undoubtedly have many undesired knock-on effects, and could even damage US trade long-term.

Nevertheless, the German trade imbalance is a source of affliction not only for Trump, with it increasingly attracting criticism even from European Union leaders including French President Emmanuel Macron. This fuels a rising perception among populist movements in Europe and beyond that Germany has benefitted disproportionately from the single currency (with Trump even calling this a form of currency manipulation). Germany has benefitted greatly by the euro having a lower value than the former Deutsche Mark, making German exports much cheaper abroad.

Trump’s rants are often more political posturing than truth, aiming to please his core supporters, particularly in the US Rust Belt (including Detroit) which brought him to power. It gives him easy political wins while he sorts out the serious structural problems with the US economy that will take years to solve, such as under-investment in infrastructure. The zoning in on Germany in particular, with which the US suffers its second-biggest trade deficit after China (which Trump has also previously accused as being a currency manipulator), is also related to Trump’s new difficulty criticising China. He himself admits this is tactless as he needs China’s help to combat North Korea’s rising recent aggression with incessant missile launch tests.


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