'Tariffs on cars threaten earnings and jobs'

German luxury carmaker Daimler has cut its profit forecast for 2018. One would think this was because of its involvement in the Dieselgate emissions-cheating scandal, with the company ordered to recall 774,000 vehicles across Europe for installing what authorities have called illegal defeat devices to rig emissions tests.

But it appears that Daimler is more worried about the long-term impact of the current trade spat between the United States and China.

Last week, US President Donald Trump announced 25-percent tariffs on $50 billion (€43 billion) in Chinese imports, prompting Beijing to retaliate by matching duties on US goods, including cars.

Asset mangers AllianceBernstein (AB) pointed out in a recent study that German carmakers with big US operations such as Daimler and BMW would be hit hardest by Chinese import tariffs on cars, much harder than American firms like Tesla.

"Fewer-than-expected SUV sales and higher-than-expected costs not completely passed on to customers must be assumed because of increased import tariffs for US vehicles into the Chinese market," Daimler concluded.

All eyes on South Carolina

Chinese import tariffs on cars will also impact the US operations of Chinese-owned Volvo. Volvo opened a new plant in South Carolina earlier this week, but company executives have warned the US-China trade dispute was likely to undermine its plans to create up to 4,000 new auto jobs in the Republican-dominated state.

Volvo's new factory is the latest addition to several large-scale manufacturing operations in South Carolina, including Boeing and BMW, which rely heavily on exports to China and elsewhere to support jobs.

"We want to export, and if suddenly China and Europe have very high barriers, it would be impossible," Volvo Cars Chief Executive Hakan Samuelsson said in a statement.

"Then you have to build the cars there, and then all cars will be more expensive — that's against all the logic of modern economies that trade with each other."

'Better off with no tariffs at all'

According to The Wall Street Journal, Germany's leading automakers would support the abolition of all import tariffs on cars between the European Union and the United States, an idea they raised during their meetings with the US ambassador to Germany, Richard Grenell.

The European Union's 10-percent tax on imported US passenger cars would have to be scrapped, and the United States' 2.5-percent duty on cars from the EU would also have to be done away with.

However, it's not the carmakers that are in a position to hammer out such a deal. The German government doesn't have the final say either as forging trade deals and deciding on tariffs are the prerogative of the European Commission acting on behalf of all member countries.

The question is, then, to what extent will other nations in the bloc be willing to play along if Washington too ever signals some willingness to scrap all tariffs on cars?

How to convince the French?

While Germany's interest in such a deal is crystal-clear, it's equally obvious that French automakers cannot be expected to applaud. The maker of Peugeot and Citroen cars, PSA, and Renault don't ship any cars for sale in the US.

Hence, The Wall Street Journal concludes, "any free trade deal would be of little value to them; in fact, a deal could open the French market to unwanted competition."

The newspaper mentions one more potential hurdle. The Europeans hope that the current 25-percent US tariff on EU pickup trucks, SUVs and big vans will also be scrapped within the framework of a possible no-tariffs-at-all agreement.

But according to the report, this is where politics might come into play again as such a move "might alienate US auto workers, a core constituency for Mr. Trump in the midterms this fall."

hg/jbh (Reuters, AFP, dpa, WSJ)