{"id":22562,"date":"2017-11-14T17:12:41","date_gmt":"2017-11-14T22:12:41","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/if-you-build-it-will-tariffs-come-bmw-in-the-world-of-trump\/"},"modified":"2017-11-14T17:13:18","modified_gmt":"2017-11-14T22:13:18","slug":"if-you-build-it-will-tariffs-come-bmw-in-the-world-of-trump","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/if-you-build-it-will-tariffs-come-bmw-in-the-world-of-trump\/","title":{"rendered":"If you build it, will Tariffs come? BMW in the World of Trump"},"content":{"rendered":"

Trump Speaks Out<\/strong>\u00a0<\/strong><\/p>\n

\u201cThe Germans are bad, very bad.\u201d\u00a0 President Donald Trump used these words to describe his frustration with the German trade surplus with the U.S. and more specifically, with the high number of cars German automakers were selling in the States [1].\u00a0 Trump then narrowed his aim at the German auto manufacturer BMW saying, \u201cI would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35 percent tax, then you can forget that [2].\u201d\u00a0 Under the specter of this tariff threat, BMW shares closed down 1.5 percent and many observers questioned whether they would continue with plans for their Mexican plant and whether they would lower their sales goals for cars sold in the U.S.\u00a0 If BMW did continue to build the plant, analysts estimated that up to 70% of the automobiles produced in Mexico would be sold to North American consumers.\u00a0 The plant in San Luis Potosi would produce 150,000 cars annually and represent a total investment of $1 billion by BMW.\u00a0 It would be the company\u2019s second production facility in North America, in addition to the one in Spartanburg, SC [3].\u00a0 A 35% tariff on cars exported from the new factory to the U.S. would severely impact marginal profit on each unit and jeopardize the entire projected value of the plant.<\/p>\n

BMW\u2019s Response<\/strong><\/p>\n

In response to Trump\u2019s threat, BMW executive Peter Schwarzenbauer affirmed the company\u2019s plans to build the plant in Mexico and said, \u201cTrump\u2019s comments aren\u2019t really a surprise\u201d [4].\u00a0 The company also reminded the President that its largest manufacturing site was located in the U.S. (in Spartanburg, SC) and it planned to increase annual capacity to 450,000 cars at the South Carolina plant and invest another $1 billion in that site.\u00a0 BMW had already invested $8 billion into the plant and Spartanburg had become the largest exporter of cars by value from the U.S.\u00a0 Instead of destroying jobs and displacing American workers, BMW had actually created 9,000 employment opportunities in South Carolina.\u00a0 The Governor of the state, a Trump supporter, commented on the company\u2019s impact there: \u201cThe presence of this company (BMW) changed everything in the trajectory of our state\u201d [5].<\/p>\n

Despite BMW\u2019s promise to increase investment in the South Carolina factory, it also developed a \u201cDoomsday Scenario\u201d plan to decrease its reliance on the Spartanburg plant and minimize its exposure to the risk inherent in Trump\u2019s protectionist trade proposals.\u00a0 Instead of only producing the X3 model in South Carolina, the company would revamp factories in South Africa and China to produce X3\u2019s there as well.\u00a0 Oliver Zipse, a BMW board member, summed up the new strategy: “We will build the X3 not only in Spartanburg, we will split it into South Africa and then to China, so we will have some flexibility to produce cars somewhere else.\u00a0 If something happens at the political level – which we don\u2019t know yet – we are able to have a flexible response\u201d [6].\u00a0 Especially in a political climate as unpredictable as the one today, it is essential that companies like BMW have the flexibility to adjust production capabilities from one part of the world to another.<\/p>\n

BMW\u2019s Road Ahead<\/strong><\/p>\n

Given the aggregate economic benefits of building a new manufacturing plant in Mexico, BMW can justify their decision to go forward with the plant even when other auto manufacturers, like Ford, have bended to political pressure and scrapped factory plans in Mexico.\u00a0 Mexico has an extensive list of trade agreements with other nations and has developed a strong network of suppliers for auto manufacturers [7].\u00a0 Additionally, BMW struck a deal with Mexico under which the company would not be required to pay state and local taxes for 10 years, and the Mexican government has agreed to make significant investment contributions to the new plant.\u00a0 BMW should explain to American politicians how Mexican governmental policies have encouraged investment and job creation, whereas protectionist and isolationist trade policies only disincentivize companies from increasing manufacturing production in those countries.\u00a0 Senator Lindsey Graham, a Republican Senator from South Carolina, knows firsthand how these restrictionist policies affect everyday American workers: “Negotiate a trade agreement with Europe, modernize NAFTA, don\u00b4t tear it up.\u00a0 We\u00b4re going in the wrong direction. We need more trade agreements, not less\u201d [6].\u00a0 In a world in which the political winds are blowing against Senator Graham and with President Trump, how do companies convince citizens that free trade actually benefits manufacturing workers like those in Spartanburg?<\/p>\n

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 <\/p>\n

(Word Count: 749)<\/p>\n

 <\/p>\n

 <\/p>\n

References:<\/strong><\/p>\n

 <\/p>\n

[1] <\/strong>Muller, Peter.\u00a0 “Die Deutschen sind b\u00f6se, sehr b\u00f6se.”\u00a0 Spiegel Online<\/em>, (May 2017).\u00a0 http:\/\/www.spiegel.de\/politik\/ausland\/donald-trump-bei-der-eu-die-deutschen-sind-boese-sehr-boese-a-1149282.html<\/a><\/p>\n

 <\/p>\n

[2]<\/strong> Taylor, Edward; Rinke, Andreas.\u00a0 \u201cTrump threatens German carmakers with 35 percent U.S. import tariff.\u201d Reuters<\/em>, (Jan. 2017). https:\/\/www.reuters.com\/article\/us-usa-trump-germany-autos\/trump-threatens-german-carmakers-with-35-percent-u-s-import-tariff-idUSKBN1500VJ<\/a><\/p>\n

 <\/p>\n

[3]<\/strong> Kurylko, Diana.\u00a0 \u201cBMW\u2019s Mexico Plant will have wide range.\u201d\u00a0 Automotive News, <\/em>(Jun. 2016). \u00a0http:\/\/www.autonews.com\/article\/20160620\/OEM01\/160619876\/bmws-mexico-plant-will-have-wide-range<\/a><\/p>\n

 <\/p>\n

[4] <\/strong>Behrmann, Elisabeth; Rauwald, Christoph.\u00a0 \u201cGerman Automakers push back Trump\u2019s warning over Mexican Plants.\u201d\u00a0 Bloomberg, <\/em>(Jan. 2017).\u00a0 https:\/\/www.bloomberg.com\/news\/articles\/2017-01-16\/bmw-pushes-back-after-trump-threatens-tariffs-on-its-mexico-cars<\/a><\/p>\n

 <\/p>\n

[5] <\/strong>Traugott, Jay.\u00a0 \u201cDonald Trump owes BMW an apology.\u201d\u00a0 Car Buzz, <\/em>(Jul. 2017).\u00a0 http:\/\/www.carbuzz.com\/news\/2017\/7\/2\/Donald-Trump-Owes-BMW-An-Apology-7739930\/<\/a><\/p>\n

 <\/p>\n

[6] <\/strong>Wroughton, Lesley; Schneider, Howard. \u00a0\u201cDoomsday Scenario.\u201d\u00a0 The International News<\/em>, (Jul. 2017).\u00a0 https:\/\/www.thenews.com.pk\/magazine\/money-matters\/213939-Doomsday-scenario<\/a><\/p>\n

 <\/p>\n

[7] <\/strong>Schmitt, Bertel.\u00a0 \u201cBlasting BMW, Trump shows scary naivete.\u201d\u00a0 Forbes<\/em>, (Jan. 2017).\u00a0 https:\/\/www.forbes.com\/sites\/bertelschmitt\/2017\/01\/16\/blasting-bmw-trump-shows-scary-naivete\/2\/#7152f708563e<\/a><\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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