Trump Speaks Out
“The Germans are bad, very bad.” 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 . Trump then narrowed his aim at the German auto manufacturer BMW saying, “I 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 .” 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. 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. The plant in San Luis Potosi would produce 150,000 cars annually and represent a total investment of $1 billion by BMW. It would be the company’s second production facility in North America, in addition to the one in Spartanburg, SC . 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.
In response to Trump’s threat, BMW executive Peter Schwarzenbauer affirmed the company’s plans to build the plant in Mexico and said, “Trump’s comments aren’t really a surprise” . 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. BMW had already invested $8 billion into the plant and Spartanburg had become the largest exporter of cars by value from the U.S. Instead of destroying jobs and displacing American workers, BMW had actually created 9,000 employment opportunities in South Carolina. The Governor of the state, a Trump supporter, commented on the company’s impact there: “The presence of this company (BMW) changed everything in the trajectory of our state” .
Despite BMW’s promise to increase investment in the South Carolina factory, it also developed a “Doomsday Scenario” plan to decrease its reliance on the Spartanburg plant and minimize its exposure to the risk inherent in Trump’s protectionist trade proposals. Instead of only producing the X3 model in South Carolina, the company would revamp factories in South Africa and China to produce X3’s there as well. 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. If something happens at the political level – which we don’t know yet – we are able to have a flexible response” . 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.
BMW’s Road Ahead
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. Mexico has an extensive list of trade agreements with other nations and has developed a strong network of suppliers for auto manufacturers . 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. 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. 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´t tear it up. We´re going in the wrong direction. We need more trade agreements, not less” . 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?
(Word Count: 749)
 Muller, Peter. “Die Deutschen sind böse, sehr böse.” Spiegel Online, (May 2017). http://www.spiegel.de/politik/ausland/donald-trump-bei-der-eu-die-deutschen-sind-boese-sehr-boese-a-1149282.html
 Taylor, Edward; Rinke, Andreas. “Trump threatens German carmakers with 35 percent U.S. import tariff.” Reuters, (Jan. 2017). https://www.reuters.com/article/us-usa-trump-germany-autos/trump-threatens-german-carmakers-with-35-percent-u-s-import-tariff-idUSKBN1500VJ
 Kurylko, Diana. “BMW’s Mexico Plant will have wide range.” Automotive News, (Jun. 2016). http://www.autonews.com/article/20160620/OEM01/160619876/bmws-mexico-plant-will-have-wide-range
 Behrmann, Elisabeth; Rauwald, Christoph. “German Automakers push back Trump’s warning over Mexican Plants.” Bloomberg, (Jan. 2017). https://www.bloomberg.com/news/articles/2017-01-16/bmw-pushes-back-after-trump-threatens-tariffs-on-its-mexico-cars
 Traugott, Jay. “Donald Trump owes BMW an apology.” Car Buzz, (Jul. 2017). http://www.carbuzz.com/news/2017/7/2/Donald-Trump-Owes-BMW-An-Apology-7739930/
 Wroughton, Lesley; Schneider, Howard. “Doomsday Scenario.” The International News, (Jul. 2017). https://www.thenews.com.pk/magazine/money-matters/213939-Doomsday-scenario
 Schmitt, Bertel. “Blasting BMW, Trump shows scary naivete.” Forbes, (Jan. 2017). https://www.forbes.com/sites/bertelschmitt/2017/01/16/blasting-bmw-trump-shows-scary-naivete/2/#7152f708563e