German Carmakers Caught in Crossfire of US-China Trade Row

German carmakers BMW and Daimler are under increasing pressure to diversify production of their sports utility vehicles outside of the United States as a result of Washington’s growing trade tensions with China.

Beijing’s proposed 25% tax on US car factory exports will hit nearly 270,000 vehicles, with German carmakers accounting for $7 billion of the $11 billion total, Reuters reported.

“This is a tax on Southern Germany, not the US,” analysts at Evercore ISI said on Thursday. “A 25% additional auto tariff would represent a $1.73 billion negative tariff impact directed at Southern Germany by China.”

BMW, the largest vehicle exporter from the United States in terms of value, has its largest factory in Spartanburg, South Carolina and faces a $965 million impact from tariffs, with Daimler exposed to a $765 million hit, Evercore ISI said.

The company makes its X3, X4, X5, X6 and X7 sports utility vehicles in Spartanburg, and the trade dispute will only add pressure to move production of volume sellers like the X5 to markets outside the United States, a senior BMW source said.

But any switch from one factory to another costs millions of euros, takes months to implement, and is taken with a long-term view, BMW board member Peter Schwarzenbauer said last month.

“We have to make decisions, like about factories in Spartanburg or factories in Mexico, which are based on a horizon of 20 to 30 years. If we were to change our strategy whenever a tweet comes out, we would get crazy,” he told Reuters.

Around 18% of all BMWs sold in the world’s largest car market were exported from Spartanburg last year, a total of 100,203 cars and the carmaker warned that a further escalation of the trade row “would be harmful for all stakeholders”.

China has threatened to double tariffs to 50% on imported automobiles and other US-made goods to retaliate against US President Donald Trump’s proposed tariffs on products including vehicles and automotive parts.