VW Says its Investment in the US Would be Impaired by Trade Tariffs with Mexico

With a large portion of its sales coming from cars built in Mexico, trade tariffs are a particular concern for VW. According to a recent report from Reuters, VW feels that the tariffs would hurt its US business.

“We believe that tariffs of this kind are a tax on the U.S. consumer and will result in higher prices and also threaten job growth,” said VW in a statement on Monday. It went on to say that it “has made significant long-term investments in the United States that would be impaired by restrictive changes to trade.”

This follows reports that Volkswagen CEO met with US Trade Representative Robert Lighthizer on Monday to discuss the White House’s tariff threat against Mexico. Although VW confirmed to Reuters that Diess was in DC on Monday, it did not confirm the meeting.

A 5% tariff on imported Mexican goods is set to be imposed June 10, with the threat that it will rise 5% per month from there if Mexico doesn’t stop people illegally crossing into the US.

Mexican officials say the country is already working to stem the flow of people from its country. The White House’s plan comes despite pleas from the President’s own party not to go through with the plan, according to the Washington Post.

Despite the pleas, Trump has said that the tariffs could go as high as 25%, which would be damaging to the Mexican economy. As its top trade partner, roughly 80% of Mexico’s exports are sent to the US.

The tariffs are concerning to Volkswagen, too, which makes the Tiguan, the Beetle, the Jetta, and the Golf in Puebla, Mexico. In May of 2019, those vehicles accounted for more than 70% of the brand’s sales.

Meanwhile, Audi’s sales will also be impacted by a US tariff on goods imported from Mexico. The company builds its Q5 in Mexico and it alone has accounted for 30% of the brand’s sales in 2019.

But Mexico’s won’t be the only economy affected by the tariff. Experts predict that the effect of the White House’s plan will ripple across the US economy as well.

“This is going to be felt by every sector and it’s going to be felt by consumers. Not just by businesses. Not just the auto industry,” Neil Bradley, chief policy officer for the US Chamber of Commerce told CNN. “It’s going to be felt more widely and deeply than previous tariffs were felt.”

What’s galling for VW is that it has invested heavily in the US in recent years. With its Chattanooga plant, it has built Passats in Tennessee for nearly a decade and started building the Atlas (the brand’s third-best selling vehicle) in 2016.

Meanwhile, VW also recently announced that it would be growing the plant in the years to come to accommodate the manufacture of electric vehicles, among them the production version of the ID Crozz concept, an electric crossover.

Volkswagen may be reassured by Mexico’s optimism, though. The country’s foreign minister, Marcelo Ebrard said at a press conference Tuesday that he believes the two countries have an 80% chance of reaching a deal to avoid these tariffs.