Tom and Dave′s Deutschland Dispatch

BMW and Import Duties

January 29, 2017 by Thomas Tatum
 

BMW’s biggest factory is not in Germany. It’s in Spartanburg, SC. And it’s an important cog in the economy, locally and beyond. Close to three quarters of the cars being built there are sent abroad. To Europe, for example, where consumer prices are higher and the company therefore earns more money with each car sold than if it were built in high-wage Europe. This added value income benefits not only BMW as a whole but also the roughly 70,000 Americans who work directly for BMW and its many suppliers, in Spartanburg and the state of South Carolina but also across the entire US. On the other hand, it’s true that a lot of stuff being built in Mexico currently goes to the US and shiny new BMWs would be no exception. But because the costs are lower there, so is the consumer price–the price an American pays to drive one of these cars. So far, so clear.


But what would you do if your name was BMW? A likely answer to the idea of American import duties would be to think about swapping the roles of these factories. Imagine for a moment a scenario in which the Spartanburg facility produced only for the US market and the Mexican cars went to Europe instead. The discussion about 35% duties would be moot because all the new BMWs would then be domestic. But the price of the cars for American consumers would rise, not despite the fact that they are being produced in America by Americans for Americans, but precisely because of this. Remember: blue-collar Americans want to earn good wages–that was why so many people voted the way they did, remember?–meaning that portion of a product’s cost which covers wages will inevitably go up. And for most mass-produced consumer products, a higher price usually translates into less volume and less growth. Fewer cars mean fewer jobs. Ask anyone in Detroit.


Something else to think about when tycoons become principled about buying American:  Does anyone remember Ross Perot? When he decided to run for President back in 1992, one of the first things he did was fire his pilots and sell his business jet–it was a French-built Dassault Falcon. Classy but apparently not PC for his slice of the American electorate. And the bright red car which went up for auction a week or two after DJT’s inauguration in January with a less-than-subtle IVANA 1 adorning the license plates is not a Chevy. It’s a German-built Mercedes Benz. Surprised?


Stay tuned...


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