Trump tariff delay won't affect possible price hikes, production shifts
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September 16, 2019 12:00 AM

Tariff delay doesn't ease Euro anxiety

Christiaan Hetzner
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    FRANKFURT — President Donald Trump's decision to delay imposing higher tariffs on Chinese goods last week did little to ease the anxiety of automaker executives who fear escalating costs from an ongoing trade war.

    Amid signs that the gears in the global economy are grinding to a halt, executives said higher import duties could trigger corresponding price hikes, affect shift plans at factories and potentially force production of some vehicles to move to different markets.

    Nicholas Peter, head of finance at BMW AG, said he expected headwinds next year should fresh tariffs be imposed. He warned some volume in its Spartanburg, S.C., plant could be lost.

    "We moved [some production of] the X3 to China last year, where we'll soon start with the X2 as well, and we're considering localizing a further model in China," Peter told reporters at the Frankfurt auto show. "Is an X5 on the list of possible candidates? Sure."

    The German premium carmaker could also be affected in exporting from its plant in Shenyang, China. BMW is currently preparing to start production of its first electric crossover, the iX3, due to launch in 2020. It will be built exclusively in China, the world's largest EV market, and shipped around the world.

    Källenius: Effects being assessed

    Ola Källenius, attending the Frankfurt show for the first time as CEO of Mercedes-Benz maker Daimler AG, also raised concerns.

    "We're a strong believer that the global open economy has been a creator of wealth for companies like ours," Källenius told reporters. The prospect of further tariff hikes, "if indeed those come into fruition, will affect our business, which we are evaluating right now."

    Trump said on Wednesday, Sept. 11, that he would delay the imposition of higher tariffs on $250 billion worth of Chinese goods by two weeks to Oct. 15 at the request of Beijing, signaling a possible de-escalation. Negotiators are due to meet in Washington in coming weeks to push forward talks to end the trade war. There's little sign that substantive progress is being made on the two countries' differences.

    The next day, the European Central Bank cited a "rising threat of protectionism" and "prevailing weakness of international trade" affecting manufacturers behind its decision to stimulate the euro area's flagging economy by restarting large-scale asset purchases that ended in December and increasing the penalties levied on lenders' reserves at the bank to 0.5 percent of their deposits.

    Time of concern<null></null>

    "Each time measures are taken to increase tariffs, it is of concern to us; each time nontariff barriers are put in place, it is a problem for us," said Erik Jonnaert, secretary general of Europe's automaker association ACEA. "We want to have a level playing field, an open market."

    Wöllenstein: Damage done

    Even if Trump backs off, the damage has been done, said Stephan Wöllenstein, operating chief of Volkswagen Group in China. He warned he no longer expected an improvement in the market in the second half. Light-vehicle sales in China fell 14 percent through June.

    "At the end of last year, it looked like things were moving in the right direction," said Wöllenstein. "Frankly, I am now more cautious. Twelve months later the whole global economy has darkened and officials in the government here are saying they do not really expect a fundamental change ahead of the election year."

    Chinese tariffs are just one trade risk. One senior industry lobbyist warned that Trump could also pull the trigger on steep tariffs for vehicles imported from the EU come November, just when the new EU Commission is slated to take over.

    "The prerequisites are there with the Wilbur Ross report," he said, referring to the U.S. Commerce Department's recommendation that the U.S. auto industry needs protection from European auto imports on national security grounds.

    ‘A symbol'

    Nonetheless, the lobbyist, who didn't want to be named, believes Trump has bigger fish to fry. "As a target for tariffs, EU cars are a poor choice," he said, explaining that the bulk of European engineered cars sold in the U.S. are also built there. "But as a symbol, they are very powerful."

    About €37.5 billion ($41 billion) worth of passenger cars were exported from the EU in 2018, according to ACEA. "This is leverage he wants to use in order to sell more agricultural goods," the lobbyist said.

    Food and safety standards have led to the banning in Europe of U.S. products such as chicken that are chlorine-washed to kill bacteria. Nonetheless, the EU recently agreed to grant greater access to hormone-free American beef.

    Asked by Automotive News Europe whether the insider's view was an accurate assessment, ACEA's Jonnaert replied: "I can confirm that."

    The U.S. administration is not interested in auto tariffs, he contended, since it realizes that even if there was progress in a mutual elimination in tariffs, it wouldn't improve its trade deficit given that American cars are typically ill-suited for European roads.

    "The U.S. is not interested in exporting," Jonnaert said. "It's a way to get more concessions on agriculture."

    Bloomberg contributed to this report.

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