But wait, aren't the tariffs on imports only? Yes, but...
According to Reuters, BMW has warned that it may be forced to reduce investment and slash its workforce at its Spartanburg, South Carolina, production facility if President Trump succeeds in imposing a 20 percent tariff on all imported EU-built vehicles. This production plant also happens to be BMW’s largest in the world and ships more than 70 percent of its annual production output to other countries. But how can US tariffs on imports affect Spartanburg?
Because other countries, such as China, have threatened to retaliate against US imposed tariffs on their goods with tariffs of their own. Because China is one of Spartanburg’s biggest destination markets, the cost of exporting those new BMWs will increase. To make up for the expected profit loss, BMW claims it could impose a production crackdown and even layoffs. And there’s more: higher tariffs on imported components that Spartanburg needs to build BMWs such as the X4, X5, X6, and upcoming X7, will in turn make other production facilities outside of the US more competitive.
“All of these factors would substantially increase the costs of exporting passenger cars to these markets from the United States and deteriorate the market access for BMW in these jurisdictions, potentially leading to strongly reduced export volumes and negative effects on investment and employment in the United States,” BMW said in a letter to U.S. Secretary of Commerce Wilbur Ross. Perhaps BMW stated the overall situation the best: “By insulating the United States from foreign competition, there is less incentive for American companies to strive to raise their productivity and look for ways and means of producing ever better goods (and services) ever more cheaply.”