German Automakers Could Be Hit Hard By America’s Trade War With China

America’s trade war with China is heating up and it appears the issue could have a major impact on German automakers such as BMW and Mercedes.

While it sounds odd that the Germans would be drawn into the conflict, both companies have plants in the United States that build and export popular crossovers. In BMW’s case, its Spartanburg plant builds the X3, X4, X5 and X6. They will soon be joined by the X7 which will go into production later this year.

Likewise, Mercedes’ Tuscaloosa plant builds the GLE, GLE Coupe and GLS. The factory also builds the C-Class for the North American market but that model wouldn’t be affected by the trade dispute.

Reuters reports both automakers could face significant consequences if Beijing follows through on its threat to add a 25% tax on vehicles imported from the United States. Citing Evercore ISI, the publication says BMW would take a $965 million hit from the tariffs while Daimler would be slightly better off with a $765 million impact.

BMW and Mercedes are well aware of the potential problem as Daimler Chairman Dieter Zetsche used the company’s annual shareholders’ meeting to say “Our global presence helps us to deal more effectively with currency fluctuations and barriers to trade. As a company, we have to adapt to the prevailing political conditions. At the same time, we are strong advocates of free trade.” Zetsche went on to say the company has 119,000 employees located outside of Germany and “fair and free markets” serve their interests.

A senior BMW source was more direct as they told Reuters the trade despite would “only add pressure to move production of volume sellers like the X5 to markets outside the United States.”

BMW has already been preparing for a possible showdown as it stopped exporting the US-built X3 to China earlier this year. The Chinese-market models are now built in Shenyang, China and Rosslyn, South Africa.