The result of the U.S. election will have far-reaching ramifications for Europe's auto industry, in particular for BMW and Mercedes-Benz, which have large U.S. factories and also count the country as their No. 2 sales market after China.
Here is what the result could mean depending on which candidates wins -- Donald Trump or his challenger, Joe Biden.
TRADE: Biden might try to revisit the proposed Transatlantic Trade and Investment Partnership (TTIP) agreement between the European Union and the U.S. Daimler and Volkswagen Group were among the companies that lobbied for the deal, which would have eliminated major trade barriers between the U.S. and EU. Trump ended negotiations and started a trade conflict with Europe, targeting German automakers.
BREXIT: The British government might have to soften its hard line on a trade agreement with the EU because Biden opposes a no deal Brexit, citing the threat to peace in Northern Ireland. Automakers would benefit if import-export tariffs between Britain and the EU were taken off the table, although customs declarations for goods will still create trade friction.
ENVIRONMENT/EMISSIONS: The U.S. Environmental Protection Agency would be strengthened in a Biden-led White House. The federal government would no longer contest California's ability to set its own emissions standards and the U.S. might rejoin the 2015 Paris Agreement on climate change. Expect automakers to revise upward their midterm sales forecasts for EVs in the U.S. if that happens.
REGULATION: A Biden administration would seek to repair ties with multilateral bodies such as the World Trade Organization. The European auto industry association ACEA said Trump's decision to shut down the WTO's dispute settlement body last December would be felt acutely in the automotive sector, which relies on global supply chains, efficient manufacturing processes and access to world markets. With the auto industry accounting for 10 percent of global trade flows, a restoration of a rules-based international system would benefit export-reliant automakers and their suppliers.
INVESTMENTS: A Democrat win should provide greater certainty for foreign investments by automakers in countries such as Mexico and Iran. BMW, Audi and Mercedes built plants in Mexico before Trump's election to export vehicles to the U.S. without tariffs. Trump renegotiated the NAFTA trade deal to create USMCA that added to production costs with measures such as requiring exporters to pay higher wages to auto workers. VW was set to invest in Iran to better compete with French rivals PSA Group and Renault, until all three abandoned their operations in the country after Trump pulled the U.S. out of the Iran nuclear deal and reimposed sanctions.
TRADE: Trump could again threaten 25 percent tariffs on passenger cars built in Europe and exported to the U.S. as he tries to open up the EU's market to U.S. imports even further. Trump has described the EU as an enemy conceived to "take advantage of the United States" and has cited a threat to national security as a reason for imposing tariffs. Trump's stance risks further weakening economic links between Europe and the U.S. and creating a state of permanent antagonism between the leading industrial nations to the detriment of globally operating car companies.
BREXIT: Brexit hard-liners in the UK would get a boost because Trump would likely favor partnerships with governments that are ideologically aligned, rather than strategic alliances. A second Trump term increases the risk that UK trade and governance rules could diverge materially from those in the EU, increasing barriers to trade for cars and part
ENVIRONMENT/EMISSIONS: Trump's support for fossil fuels could delay a transition toward electrified vehicles that is happening in Europe and China. While this could help bolster automakers' profitability by propping up sales of combustion engine cars, companies such as VW would not be able to scale up their electric vehicle sales as quickly. Low gasoline prices might dampen interest in models such as VW's full-electric ID4 crossover, which will be built in Chattanooga, Tennessee, starting in 2022.
INVESTMENTS Additional pressure could be applied on European automakers to invest more heavily in their U.S. operations, including the plants operated by Mercedes in Vance, Alabama, BMW in Spartanburg, South Carolina, and VW in Chattanooga. BMW's plant is the automaker's largest single manufacturing facility and the largest U.S. automotive exporter by value. The automakers have already conceded that they may have to increase U.S. production if local content rules are made more stringent.
CHINA: Chinese-American relations have been fraught since the coronavirus outbreak spread from China to the United States. Automakers with operations in the U.S. and China that service both markets, most notably Mercedes and BMW, could find themselves once more as collateral damage in another, potentially more severe trade dispute between Washington and Beijing.