Daimler Issues Profit Warning as China Duties Bite -- WSJ

By William Boston

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 21, 2018).

BERLIN -- The escalating trade war between the U.S. and China has claimed an unintended victim: Germany's premium car manufacturer Daimler AG.

The Stuttgart-based maker of luxury sedans and muscular sport-utility vehicles issued a surprise profit warning late Wednesday, saying Chinese retaliatory import duties on vehicles built in the U.S. would hit sales and profits of the SUVs it builds at its Alabama factory.

"This effect cannot be fully compensated by the reallocation of vehicles to other markets," Daimler said in a statement.

Daimler now expects pretax profits at its Mercedes-Benz Cars division to dip slightly below the previous year's levels.

While Daimler called China's import tax on U.S. autos the "decisive factor" in lower earnings, it said other divisions were also weakening as a result of new European emissions regulation and the decline of diesel. As a result, Daimler said 2018 group earnings before interest and taxes would be lower than the previous year.

The profit warning is one of the first clear signs that President Donald Trump's decision to raise import tariffs on some products from China and other trading partners is fueling a retaliation that is hurting manufacturers in the U.S. that export their products abroad.

German auto makers Daimler, BMW AG, and Volkswagen operate four manufacturing plants in the U.S. that employ 36,500 American workers. Last year, the German auto makers produced 804,200 vehicles at those plants, but less than half were sold in the U.S. The rest, around 480,911 vehicles, were exported to Canada, Mexico, Europe, China and other markets.

Industry executives have warned that if U.S. trade partners retaliate against President Trump's import tariffs in a creeping tit-for-tat trade war, U.S. jobs would ultimately be at risk.

Write to William Boston at william.boston@wsj.com

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June 21, 2018 02:47 ET (06:47 GMT)

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