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June 22, 2018 1:45 PM, EDT
German Auto Stocks Decline on Threat of 20% Tariff
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German automotive stocks fell after U.S. President Donald Trump threatened to impose a 20% tariff on all European car imports, escalating his demand for concessions aimed at lowering the U.S. trade deficit.

Shares of Volkswagen AG, Daimler AG and BMW AG fell in Frankfurt after Trump’s latest broadside, insisting European manufacturers “build them here!” General Motors Co. and other U.S. automakers gave back earlier gains, as concerns spread they, too, would get ensnared in rising global tariffs.

“Based on the Tariffs and Trade Barriers long placed on the U.S. and its great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!” Trump said in a tweet June 22.

The June 22 salvo marks a further intensification of Trump’s campaign to tear up trade agreements and extract better terms.

The United States is renegotiating its NAFTA deal with Mexico and Canada, while trading threats with China. German manufacturers, which import 600,000 vehicles to the United States each year but also are America’s biggest exporters, are a favorite target.

The risk of a trade war is becoming more real, said Jeff Schuster, senior vice president of forecasting at LMC Automotive, before Trump’s latest salvo.

“A few weeks ago, we thought these issues on trade would fade away,” Schuster said. “What we’re now looking at is extremely disruptive to carmakers for their production setups and profit margins.”

Arndt Ellinghorst, a London-based analyst at Evercore ISI, estimates the German manufacturers would suffer a financial hit of about 4.5 billion euros ($5.24 billion).

A 20% tariff “would be a TERRIBLE (to use modern language) scenario for Germany which is shipping about 600,000 units to the U.S. per year,” Ellinghorst said in a note to clients. “Not a single car could be shipped with a profit to the U.S.,” he said.

While the damage would be steep, the June 22 proposal actually is lower than the 25% Trump previously floated.

A surcharge at the higher rate would add around 10,000 euros to the sticker price of a European-built car, the European Commission said in a report obtained by Bloomberg News prepared ahead of next week’s summit assessing tariff threats. Duties at this level could be expected to reduce U.S. imports of car and car parts by about a half.

Daimler, the maker of Mercedes-Benz cars, pared steeper earlier losses to close down 0.3% on June 22. Fellow luxury-car maker BMW declined 1.1%. Volkswagen, less reliant on imports into the United States, lost 0.2%.

General Motors, which had been up as much as 1.5%, was little changed in New York. Ford Motor Co. was up 0.2%, after a 1.4% rise, and Fiat Chrysler Automobiles NV’s New York-trade gave back all of its earlier 2.5% advance.

For its part, EU is worried that U.S. tariffs would cause “severe disruption” to the bloc’s auto industry, according to the paper.

A U.S. tariff on car imports “would call into question the global production model at a time when efforts should be devoted” to developing self-driving features and electric vehicles, the commission said in the paper. “It goes without saying that protectionist measures of this kind will not help U.S. car producers, either.”

German manufacturers Volkswagen, BMW and Daimler are the biggest European exporters of cars to the United States, followed by Fiat Chrysler.

With assistance from Oliver Sachgau, Nikos Chrysoloras and Christoph Rauwald.