GENEVA—European auto executives are warning that if President Donald Trump imposes prohibitive tariffs on automotive imports they could be forced to curb investment in their U.S. factories, threatening American jobs at car plants owned by foreign manufacturers.
Mr. Trump ordered stiff duties on steel and aluminum imports last week, while giving allies, like the European Union, a chance to negotiate exemptions. Then, at a weekend rally in Pennsylvania, he appeared to take aim squarely at Europe, threatening to extend tariffs to the continent’s car industry: “They kill us on trade” and: “We’re going to tax Mercedes-Benz... We’re going to tax BMW.”
However, raising tariffs on imported cars could prove trickier than on steel and aluminum imports and could have unexpected effects. If European car makers react by cutting investments in their U.S. plants, it could even hurt U.S. car exports.
That is because Germany’s big auto makers—Volkswagen AG, BMW AG and DaimlerAG, which makes Mercedes—have built factories in the U.S. and Mexico in recent years that are geared to export to Europe and China, not just to sell to Americans.
The German manufacturers employ around 36,500 Americans at their factories in South Carolina, Alabama and Tennessee. If U.S. exports face retaliatory tariffs and it becomes more difficult or uncompetitive to export cars from the U.S., European auto makers would likely have to shift those jobs to Mexico or bring them back to Europe.
“Should we face tariff barriers, it will have an impact on jobs in the United States,” BMW CEO Harald Krüger told reporters at the Geneva Motor Show this week.
Fears of a global trade war is leading Volvo Cars Corp., the Chinese-owned Swedish auto maker, to reconsider the scope of a new plant that it is building near Charleston, S.C. The factory will produce Volvo’s S60, a stylish sedan packed with state-of-the-art safety features and is slated to begin production later in 2018.
Volvo’s plan is sell half the cars it builds in Charleston in the U.S. and to export the other half to Europe and China. However, Volvo fears that a trade war would change the economics of the plant, making it impossible to export cars from the U.S. if they faced retaliatory duties in Europe and Asia. That means Volvo would scale back the Charleston operation.
“If the factory in South Carolina could not export, it would be half the size. It would not employ 4,000 people anymore but just 2,000,” Volvo CEO Håkan Samuelsson told reporters this week. “That is the direct impact for America of trade restrictions.”
Import tariffs would hit about one-third of new cars sold in the U.S., based on 2017 sales figures. Most of those imports come from factories in Mexico built after the North American Free Trade Agreement came into force in 1994. The imports from Mexico include nearly two million cars built by GM and Ford.
Germany exported 494,000 cars and light trucks to the U.S. in 2017, a 25% decline since 2013, according to the German automotive industry association.
On the other side of the Atlantic, American car makers enjoy roughly the same share of European auto markets as their European counterparts in the U.S.
Steven Armstrong, president of Ford’s European business, dismissed Mr. Trump’s claims that American auto makers were blocked from selling cars in Europe.
“He obviously hasn’t seen our booth this morning,” Mr. Armstrong said on the sidelines of the Geneva Motor Show. “If the product fits the market, consumers will buy it.”
