Last month, President Donald Trump made an unusual comment after his first trip abroad since taking office. He told a German newspaper the “Germans are bad, very bad” when it comes to trade and called for an end to German car sales in the United States.
White House economic adviser, Gary Cohn, confirmed the statement but clarified that President Trump was only referencing the country’s trade policy. Following the comment, the media was flurried asking why the president would say such a thing.
Former General Motors executive, Bob Lutz, penned a rebuttal to the controversy with Automotive News and explains why the president got it right, but maybe didn’t deliver the message in the right way.
The problem, according to Lutz, is Germany’s tariffs and taxes. Germany levies a 19 percent value added tax (VAT) and the European Union raises a 10 percent tax on imported cars. It’s one of the reasons automakers are so worried about Brexit and what it could mean for European auto production.
When a German vehicle is exported to the United States, the automaker does not pay a VAT but pays a light 2.5 percent duty rate and any other state sales tax that applies. Meanwhile, a car shipped from the U.S. and brought into Germany already carries a U.S. tax load. Therefore, it’s essentially taxed twice and vehicles exported from the U.S. to Germany are more expensive.
“This is what the president means, and he is NOT wrong. This has been going on for decades, and I’ve been telling it for decades, but nobody has wanted to listen,” Lutz writes. “Until now.”
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