December 3, 2018 19:00 CET
WASHINGTON — Top executives of Volkswagen Group, Daimler and BMW have a balancing act to pull off when they meet with Trump administration officials Tuesday about potential tariffs on U.S. imports from Germany.
The automakers don’t want the U.S. to enact proposed levies of as much as 25 percent on billions of dollars worth of cars they ship in from Germany every year. But they will be careful not to become entangled in negotiations that rest squarely in the hands of European Union trade officials, according to people familiar with the matter.
VW CEO Herbert Diess, Daimler’s Dieter Zetsche and Harald Krueger of BMW were already scheduled to speak this week at an event organized by the German newspaper Handelsblatt. But with the EU talks at an impasse and a draft report circulating that could lead to levies, the companies accepted a White House invitation — with BMW Chief Financial Officer Nicolas Peter flying to the U.S. instead of his boss — said the people, who asked not to be named discussing non-public information. The manufacturers are seeking clarity to make long-term U.S. investment decisions, one of the people said.
The proposed duties would be devastating to U.S. sales of German-made models including Mercedes-Benz S-class sedans, Porsche 911s and sporty BMW 3-series compacts. VW’s Porsche and Audi units would have their U.S. profits wiped out if the tariff was lifted to 25 percent from the current 2.5 percent, according to Bloomberg Intelligence. Overall, BI estimates vehicle sales valued at 23 billion euros ($26 billion) would be affected.
The executives are set to meet Tuesday morning with U.S. Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross and National Economic Council director Larry Kudlow, the people said. There’s no indication that President Donald Trump will attend, they said.
The U.S. side has been frustrated by a lack of progress in EU talks and is eager to hear directly from the carmakers, one of the people said. Richard Grenell, the U.S. ambassador to Germany, played a role in setting up the White House meeting, while the German government has been prodding the EU to move forward in the broader trade talks. While the EU negotiations aren’t part of the agenda, the topic of increasing U.S. production and investment will be discussed, the people said.
EU Trade Commissioner Cecilia Malmstrom has already suggested to scrap tariffs on cars between the EU and the U.S. altogether. Auto industry officials have voiced support for the proposal, but it didn’t resonate with the U.S. side so far. The U.S. shields its light-truck market for bestsellers like Ford Motor Co.’s F-150 pickup with a 25 percent import tax.
BMW and Daimler are also exposed to another white-knuckle trade negotiation involving the U.S. The two German companies account for six of the 10 top-selling vehicles made in the U.S. and exported to China. The Asian country, locked in a trade war with the U.S., has slapped a 25 percent surcharge on those cars.
Trump tweeted early Monday that China was poised to “reduce and remove” the extra tariffs after he met with his counterpart, Xi Jinping, at the Group of 20 summit in Argentina over the weekend. The Chinese declined to comment on any changes.
A U.S.-China trade resolution would boost BMW and Mercedes’ 2019 earnings by as much as 500 million euros each before interest and taxes, according to Bloomberg Intelligence estimates.
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