Trump's German Car Tax – Job Generator or Economic Disaster?
Love him or hate him Trump is here to stay. He has waged war on German carmakers … is his latest idea a moment of genius or sure to be an enormous economic error?
Trump has made some shocking claims during his campaign, from border long walls that looks scarily close to becoming a reality and taking oil directly from the hands of ISIS. The latest victims in his crosshair are German carmakers. Trump has promised to revive industry jobs and believes adding a tax to all cars imported to the US will force manufacturers to build from within the US. Currently many of the largest car makers have moved production plants out of the US and into Mexico to take advantage of cheaper labour and ease of trade across the border, meaning a steady decline in manufacturing jobs within the US.
To address this Trump has said the following;
“if you want to build cars in the world then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA you will pay 35% tax.
I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA without a 35% tax, then you can forget that”
These comments caused BMW, Daimler and VW shares to take a slight dip, but clearly have not created too much alarm. BMW were quick to confirm the new plant they have planned in Mexico will still go ahead. BMW currently manufacture the X3,X4, X5 and X6 in the US and export more vehicles than any other out of the US (35%) leading to confusion as to why Trump would single this car maker out. Collectively German car manufacturers employ around 33,000 workers in the US.
Trump has clarified he believes Germany produce great cars, his problem is the unfair business relationship which see many German cars on American streets, and not vice versa. In response to this Sigmar Gabriel, German Economy Minister and Vice Chancellor simply said;
“Then the US need to build better cars”
If Trump goes ahead with his plans who will come out on top? Will car makers avoid the tax and move production back to the US and so create many more new jobs? Or will the true victim be the consumer who is sure to pick up the extra tax cost?
Here in the UK, MINI, Honda, Toyota, Nissan, Lotus, Aston Martin, Bentley, Rolls Royce, Jaguar, Land Rover and Vauxhall are all still manufacturing, with all other cars imported. The UK car industry is in a strong position, more than 1.6 million cars were produced here in 2016 with 78% exported and car manufacturing output higher than at any time since 1999. Yet, we too have seen manufacturers move out of the UK to take advantage of cheaper production costs elsewhere. The latest being MG, who have moved production to China after 100 years.
Would you like to see a similar tax applied in the UK to stimulate job growth further?
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The comments above do not necessarily reflect Rivervale's views unless clearly stated.
26 January 2017
Written by Natalie Faughy