United States President-elect Donald Trump warned German car companies he would impose a border tax of 35 percent on vehicles imported to the U.S. market, a plan that drew sharp rebukes from Berlin and hit automakers’ shares .
In an interview with German newspaper Bild, published on Monday, Trump criticized the German carmakers for failing to produce more cars on U.S. soil.
“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 percent tax,” Trump said in remarks translated into German.
“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,” Trump said.
Volkswagen (VOWG_p.DE) shares fell 2 percent, and shares in Daimler (DAIGn.DE) and BMW (BMWG.DE) both fell 1.8 percent by 1033 GMT (5:33 a.m. ET).
Trump has turned his fire on automakers who manufacture cars in Mexico, a growing production center where costs are lower. He has warned Japan’s Toyota (7203.T) it could be subject to a “big border tax” if it builds its Corolla cars for the U.S. market at a planned factory in Mexico.
All three German carmakers have invested heavily in factories in Mexico, with an eye to exporting smaller vehicles to the U.S. market.
At the same time, German carmakers have quadrupled light vehicle production in the United States over the past seven years to 850,000 units, more than half of which are exported from there, the German VDA automotive industry association said.
“In the long term, the United States would be shooting itself in the foot by imposing tariffs or other trade barriers,” VDA President Matthias Wissmann said in a statement.
Speaking in tabloid newspaper Bild, German Economy Minister Sigmar Gabriel said that rather than trying to penalize German carmakers, the U.S. should instead respond by building better and more desirable cars.
Norbert Roettgen, head of Germany’s foreign affairs committee, said Berlin needed to take Trump’s comments on the possible border tax seriously.
“He seems to be absolutely focused on short-term job interests and security interests … not that he is looking for free trade so much, but more for protection,” Roettgen told Reuters.
Mercedes-Benz and BMW already have sizeable factories in the United States where they build higher-margin sports utility vehicles (SUVs) for export to Asia and Europe.
Around 65 percent of BMW’s production from its factory in Spartanburg, South Carolina is exported overseas. BMW builds the X3, X4, X5 and X6 models in the United States.
“It is surprising that Trump singles out the carmaker that exports more vehicles from the United States than any other manufacturer,” analysts at Evercore ISI said.
A BMW spokeswoman said a BMW Group plant in the central Mexican city of San Luis Potosi would build the BMW 3 Series starting from 2019, with the output intended for the world market. The plant in Mexico would be an addition to existing 3 Series production facilities in Germany and China.
In June last year, BMW broke ground on the plant, pledging to invest $2.2 billion in Mexico by 2019 for annual production of 150,000 cars.
Daimler has said it plans to begin assembling Mercedes-Benz vehicles in 2018 from a $1 billion facility shared with Renault-Nissan (RENA.PA) (7201.T) in Aguascalientes in Mexico. A spokesman for Daimler declined to comment on Trump’s remarks.
Last year, VW’s Audi division inaugurated a $1.3 billion production facility with 150,000 vehicle production capacity near Puebla, Mexico. Audi said it will build electric and petrol Q5 SUVs in Mexico.
Audi declined comment on Monday.
Volkwsagen also declined to comment on Trump’s remarks but pointed out it was investing another $900 million in its U.S. plant in Chattanooga, Tennessee.
Trump called Germany a great car producer, noting that Mercedes-Benz cars were a frequent sight in New York, but claimed there was not enough reciprocity.
Germans were not buying Chevrolets at the same rate, he said, calling the business relationship an unfair one-way street.
Chevrolet sales have fallen sharply in Europe since parent company General Motors (GM.N) in 2013 said it would drop the Chevrolet brand in Europe by the end of 2015. Since then, GM has focused instead on promoting its Opel and Vauxhall marques.
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