Tariffs Imperil a Hometown Business in South Carolina: BMW
Posted July 19, 2018 3:54 p.m. EDT
Updated July 19, 2018 4:02 p.m. EDT
SPARTANBURG, S.C. — In the middle of David Britt’s campaign to get BMW to put a car factory here, a man grabbed him by the tie while he was in a restaurant.
“Don’t give that land to the Germans,” the man hissed to Britt, a county official.
Two decades later, the automaker has become the most important local job creator, earning the affection of a deep-red county where 1 in 10 people earns a living making vehicles or their parts.
The Spartanburg plant is BMW’s biggest in the world. It has helped draw more than 200 companies from two dozen countries to Spartanburg County. And the German company — not an American icon like Ford or General Motors — is now the largest exporter of cars made in the United States, turning the port of Charleston, South Carolina, into a hub for global trade.
But by setting off a global trade battle, President Donald Trump is threatening the town’s livelihood. People aren’t happy.
“BMW saved Spartanburg and transformed South Carolina into a manufacturing mecca to the world,” said Britt, a member of the County Council. “When you mess with the golden goose, they’re family, and you’re messing with me.”
On Thursday, the Commerce Department is holding a hearing in Washington on whether imported cars and car parts harm national security, the premise of an administration plan to impose hefty duties. If imposed, the tariffs would most likely have deeper and wider-reaching repercussions for the economy than levies on fish or steel. Cars don’t come together in one plant, with one workforce — they’re the final result of hundreds of companies working together, in a supply chain that can snake through small U.S. towns and cross oceans.
Automakers have lined up to oppose the measure, which they say would make it more expensive to build cars here and would prompt other countries to respond in kind, hurting exports.
China has already increased its levies on cars from the United States. The European Union has promised nearly $300 billion in retaliatory tariffs.
Trump puts much of the blame on Europe. The EU imposes a 10 percent tariff on U.S.-made cars, compared with the 2.5 percent U.S. levy on European cars. The president recently called the EU a “foe” and has developed a particularly frosty relationship with Germany, which he has deemed “very bad” on trade. Some workers in South Carolina want Trump to lay off of their German patrons, but others are happy he’s taking them to task for the imbalance.
“Open up the barriers and get rid of your tariffs,” Trump said of the European policies at a March rally in Pennsylvania. “And if you don’t do that, we’re going to tax Mercedes-Benz, we’re going to tax BMW.”
Larry Kudlow, the White House economic adviser, said Wednesday that he expected a “very important” offer on trade when the EU president, Jean-Claude Juncker, visits Washington next week.
But lashing out at German carmakers could inflict wounds in this upstate swath of South Carolina. In March, BMW’s chief executive, Harald Krüger, said Trump’s auto tariffs “would have an impact on jobs in the United States.” In a June letter to the Commerce Department, the company said it might cut investment and production in Spartanburg if selling its U.S.-made SUVs abroad became too expensive.
Already this year, BMW stopped exporting the X3 crossover from Spartanburg to China and began making more of the SUVs in plants in Shenyang, China, and Rosslyn, South Africa.
It announced last week that it would increase production capacity to 520,000 vehicles in its two Shenyang plants next year, overtaking the total production in Spartanburg. This week, the Chinese government announced that it would allow BMW to increase its stake in the Shenyang joint venture to 75 percent from 50 percent, making it the first foreign carmaker to own a majority of a manufacturing operation in the country.
Those overseas moves are being watched warily here. “This directly affects us,” said A.J. Cemprola, a software developer at BMW’s Spartanburg plant. “It isn’t talk anymore.”
Cemprola, 30, said the job helped him pay off his student loans and buy a four-bedroom home with his wife. Everyone in town, he said, works at BMW or knows someone who does.
“This area has grown a lot from BMW, and it’s been great for South Carolina,” he said. “And we don’t want that to change.”
The company insists it’s going to produce a new vehicle, the X7, in Spartanburg. But the tariff moves have sent a shiver through the area. If the company decides to make fewer SUVs here, the effects would spread far beyond Cemprola’s paycheck.
A significant chunk of the thousands of parts in an X3 aren’t made in Munich — they’re manufactured by small and midsize companies across the United States. The door system, for example, comes together at a plant in Duncan, South Carolina, owned by Brose, a German parts maker that also has factories in Michigan, Illinois and Alabama.
A line of five South Carolinians works with three robots to fit all the pieces of the door system together. The plastic plate came from Baxter, a producer in Westminster, South Carolina. A supplier in Ohio made the fleece inside. Brose also makes the pair of oblong air gates that give the front of some BMWs their toothy look. It imports the air-gate motor from its plant in the Czech Republic.
Brose didn’t want to speculate on the impact of the tariffs. But the Brose plant manager, Michael Morgenroth, said, “If you’re smart, you can draw your own conclusion.” Other suppliers that have set up shop in South Carolina have been more direct. ZF Friedrichshafen of Germany, a major producer of transmissions, and Magna of Canada, a giant in seat manufacturing, said in letters to the Commerce Department that the tariffs would directly hit their American workers.
“It’s not good what is happening at the moment,” said Erwin Doll, chief executive of Röchling Automotive, a German company that employs 400 people at a plant in Duncan. Röchling makes underbodies of SUVs for BMW, along with plastic systems that make the vehicles more aerodynamic.
“If BMW or Daimler or Nissan or Honda cannot export as many as they like, then obviously it will hurt our turnover as well,” Doll said of the plant’s prospective revenue.
The company has plants in many of the places that BMW does around the world, and if the carmaker shifts more production out of Spartanburg, Doll would probably need to follow suit. “We would have to adjust our cost and think about how we invest,” he said.
At the Port of Charleston on Friday, as BMWs cycled out of the docks, trade barriers seemed a distant worry. Workers drove more than 300 gleaming SUVs onto a massive ship that functions like a parking garage on water, with scheduled stops in England, Belgium and Germany.
In June, the port handled more shipping containers than in any other month in its history — possibly reflecting a surge in shipments timed to avoid new tariffs — and the fiscal year that just ended broke traffic records. But Jim Newsome, chief executive of the South Carolina Ports Authority, warned that if the back-and-forth with Europe on trade escalated, “that would hurt our port.” Workers appear less concerned, for now. “I don’t see where we have been affected by the trade war like they’ve been talking about,” said Glenn Jamison, 62, a longshoreman who spends his days checking a video feed of arriving containers to make sure they’re sealed and not damaged.
He looks at the count of boxes filled coming into the port and leaving every day, and the numbers keep going up. Ten percent of all of the containers that the port processes are filled with products related to the auto industry.
“We don’t see any instability,” he said. “We’re hearing about it, but we don’t see it yet.”
Trump’s trade strategy has won him fans on the docks, even though it could hurt some of them.
“American workers have been sold down the river with NAFTA and other agreements,” said Michael Spellman, who handles the documentation for cargo. He praised Trump for trying to renegotiate deals that the president sees as unfair, even if that approach costs some jobs in the short term.
“He’s doing what he said he would,” Spellman said. “He’s keeping promises, instead of lip service like every other politician.”