BMW Raising Prices on American-made SUVs in China, Willing to Absorb Some Tariff Costs

BMW says it will hike the price of two utility vehicles in China to cope with the additional cost of tariffs on U.S. car imports in the world’s biggest vehicle market. The models are the X5 and X6, both manufactured in South Carolina.

This news comes after China increased import duties on all automobiles from the United States to 40 percent earlier this month. China had previously said it would reduce its already high vehicle tariffs across the board as a sign of good faith — which it did, while simultaneously slapping new punitive tariffs on the U.S. Meanwhile, President Donald Trump has postponed prospective automotive tariffs while negotiations take place with Europe.

If you needed proof that a trade war is on and were wondering how automakers would handle it, look no further. BMW says it will have to raise the models’ Chinese MSRP by 4 percent to 7 percent. It’s a relatively modest increase considering how utterly massive the new import fees are, which indicates a willingness from the automaker to absorb some of the associated costs just to remain in the market. It’s something BMW is not alone in doing, and there could be a valuable lesson to be learned from that.

“BMW stands for free [trade] but can’t stand still without taking actions to respond to the market changes,” a BMW spokeswoman explained to Reuters.

The actions taken by the German manufacturer appear to involve doing whatever it takes not to lose out on occupying the world’s largest automotive market. Keep in mind that practically every automaker under the sun complained to the United States that the mere prospect of tariffs would induce price increases, layoffs, and reduced investments. The rhetoric against China has not followed the same path.

Ford has already stated it will not increase prices in Asia, as it doesn’t want to further hamper its ability to do business there. General Motors, which builds and sells a large number of vehicles in China already, claims it’s assessing the potential impact of all trade actions and proposals but has made no decisions as of yet. Fiat Chrysler is doing the same.

However, Reuters found that Mercedes-Benz increased pricing on its American-made crossovers this month. Chinese dealers claim the GLE, which is shipped over from Alabama, had undergone a moderate increase in price. Mercedes boss Dieter Zetsche said last Thursday that Daimler is already looking at ways to mitigate the impact of the trade war. Possible solutions include shipping some U.S. production to China.

It’s almost like the auto tariffs from China are working in its favor. This begs the question as to whether or not the United States should just bite the bullet and pull the trigger on the fresh duties Trump is threatening. Granted, China has framed the automotive import fees against the U.S. as a retaliatory measure, but neither side is innocent.

The People’s Republic imposed draconian rules on foreign automakers (and other industries) for years while the Western World assumed it would someday meet them in the middle. That’s not how things played out. Instead, China has been so wildly shrewd that it managed to amass a ludicrous amount of wealth and bargaining power. Now it’s throwing Europe a bone while telling the United States to go kick rocks.

Frankly, it’s rather impressive what China managed to achieve. But it appears to have been at the expense of the United States, with no clear solution in sight. Presumably, if automakers are willing to cave in order to continue operating in the Chinese market, they would do the same for the United States. But to what degree is the real question, as the United States is not a growth market. China has far more citizens, and a greater number of them become car owners every year.