President Donald Trump is taking aim at German automakers, calling the popularity of German-made cars in the U.S. "terrible" and vowing, "We will stop this."
His comments, in which he described German trade practices as "bad, very bad," raise questions about the state of trade between the U.S. and Germany, as well what means he has to deter U.S. consumers from buying Mercedes, BMWs and other German vehicles.
Mr. Trump is correct in noting America's trade imbalance with Germany, given that Europe's largest economy exports more goods to the U.S. than it imports from American companies. That gap stands at $64 billion over the 12 month period ending March 2017. Experts point to a large trade deficit with other countries, as the U.S. has had with China over the years, in explaining the migration of millions of jobs overseas.
Still, German exports to the U.S. outstripping imports is nothing new said Kathy Bostjancic, head of U.S. macro investor services at Oxford Economics. The peak was in 2015, when the deficit reached almost $75 billion. The reason for the deficit? It's largely due to the differences in behavior between U.S. and German consumers, reflecting differing attitudes toward spending and distinct economic circumstances.
"Domestic demand in Germany isn't strong enough to pull in imports from other countries," she noted. "They have a relatively high savings rate. It's a culture of savings, compared with other economies where borrowing and lower savings are within the culture, like in the U.S."
Other factors also affect Germany's balance of trade with the U.S., including demographic changes, corporate investment trends and Germany's membership in Europe's single currency. "Because they are part of the eurozone, and the euro is weaker on balance than it would be if they had their own currency, which was the Deutschmark, that makes their exports more attractive than it would be otherwise," Bostjancic said.
In other words, getting Germans to spend more on U.S. imports -- or imports from any other country -- would likely take a major societal and economic change within that country.
The U.S. is far from the only nation to take issue with Germany's export-driven economy. In recent years, the country has drawn fire for maintaining trade surpluses with weaker eurozone members during the European financial crisis in 2010-11, a policy that critics say worsened unemployment in Greece, Portugal and other "peripheral" economies.
German politicians are well aware of how such imbalances can rankle their trading partners. One German think-tank told the Financial Times that many within the country view its trade surplus with other nations as a "moral" issue more than an economic problem.
As far as Mr. Trump's suggestion that he would put a "stop" to sales of German cars in the U.S., that suggests the type of protectionist policies he advocated while on the campaign trail, such as imposing tariffs on foreign-made goods.
That might be a possibility, but such tariffs are complicated by the fact that some German cars are made in the U.S., including at BMW's plant in Spartanburg, South Carolina. That factory manufactures several BMW X models, which are exported to more than 140 countries. Mercedes-Benz has a plant in Tuscaloosa, Alabama, while Volkswagen produces cars in Chattanooga, Tennessee.
Raising the cost of German vehicles in the U.S. would hurt their sales, which could threaten just the kind of manufacturing jobs that Mr. Trump has vowed to protect.
German automakers "have created jobs here and opportunity, and that's gets tricky," Bostjancic said. Tariffs to support protectionist policies "tend to be counter-productive."
As for how American consumers would react to a tariff on German cars, that's another wild card.
"Consumers who purchase high-end cars would be not pleased to pay higher prices. but then if you talk with others who don't buy German-made cars or talk with someone who works in a U.S. auto plant or believe that we should promote U.S.-made goods then they would say, 'Fine, let them pay more.'"
As for the president, he himself doesn't only buy American when it comes to cars. Mr. Trump's personal car collection has included a number of European-made cars, including a Mercedes and a Rolls-Royce, according to Business Insider.