Imported tariffs on US-made cars lead to the possibility of BMWs price hike in China

As soon as China’s 25 per cent tariff on US-made cars came into effect on Friday, July 6, German luxury automaker BMW said it would not be able to completely absorb the new tariff and thus, would raise prices on the vehicles it makes in Spartanburg, South Carolina.

BMW said it is “currently calculating related necessary pricing increases” for U.S.-made models imported into China and will announce them “at a later stage.”

Last year, the automaker had shipped more than 100,000 vehicles of high-margin models such X4, X5, and X6 SUV and crossover from the United States to China.

China's 25 per cent tariff on imported US vehicles was nothing but a retaliatory act to the Trump’s administration tariffs on US$34 billion of Chinese imports.

This posed a tough choice for automakers whether they should absorb the cost of tariffs and take a hit to tariffs or hike prices.

“The question for automakers is, are you able to sell your products to consumers at a higher price?” said Johan Gott, a principal at management consulting firm A.T. Kearney. “And if you can’t, what are you going to take that (profit) margin out of?”

Gott said besides this Chinese tariff on US-assembled cars, automakers are already dealing with imported aluminium and steel tariffs in the US and facing the possibility of 25 per cent US tariff on vehicles imported from the EU.

Ford Motor Co, on the other hand, said it would not hike prices of imported Ford and higher-margin luxury Lincoln models in China.

A spokeswoman for Daimler also refused to comment on pricing strategy as of now. It would rather monitor the tariff situation in this present moment.