Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / The Mercedes Bill That Could Reshape US Trade
Transcript
- Lucas: So there's a bill moving through Congress right now that could effectively ban Mercedes-Benz from selling cars in the United States. Not because of emissions or safety — because of who owns a small piece of the company. Luna: A small piece? I saw that headline — it's tied to Chinese ownership, right? But Mercedes is German. How does that work? Lucas: It's German by headquarters and heritage, but the largest single shareholder is a Chinese company called WMotor. They hold about 9.7 percent of Mercedes-Benz Group AG. And under this bill — the 'Protecting American Auto Security Act' — any automaker with a Chinese shareholder owning more than five percent would be barred from the US market. Luna: Right, exactly. And if you've gotten value from shows like this one — the way we break down trade policy and cross-border deals — the reason we can keep doing it ad-free is listener support. It's buy me a coffee dot com slash fexingo. Just a way to say this matters to you. Lucas: Totally. No pressure, just if the show's useful. So back to the bill — the threshold is five percent. That's an incredibly low bar. Most institutional investors hold more than that in big multinationals. But the trigger here is specifically Chinese ownership beyond five percent. Luna: So WMotor is the company that bought a stake from Geely a couple years back, right? They're not even a carmaker — they're more of an investment holding firm. Lucas: Exactly. WMotor is an investment vehicle. They don't make cars. But under the bill, the ownership is what matters, not control. And 9.7 percent is nearly double the threshold. So Mercedes would have to either get WMotor to sell down below five percent, or lose access to the US market entirely. Luna: How realistic is that? Could Mercedes just buy back those shares or find a different buyer? Lucas: They could, but it's not simple. WMotor bought that stake at around 80 euros per share in 2023. Shares are around 60 now. So WMotor would take a loss if they sold. And Mercedes can't force them to sell. Plus the bill doesn't give a grace period — it would take effect 180 days after passage. That's not a lot of time to restructure a nine-point-seven percent stake. Luna: And Mercedes sells a lot of cars in the US. Their top-end models — S-Class, GLE, the electric EQS — those are big margin vehicles. Losing that market would hurt. Lucas: It would be a massive revenue hit. The US is Mercedes' second-largest market after China. They sold about 350,000 vehicles here last year. And it's not just Mercedes — the bill would also apply to any automaker with Chinese ownership above five percent. That could include Volvo, which is owned by Geely, and Polestar. Even some joint ventures could be affected. Luna: So this bill is targeting the ownership structure, not where the cars are made. Mercedes has a plant in Alabama — would that matter? Lucas: The bill as written applies to any vehicle sold in the US, regardless of where it's manufactured. So even Alabama-built Mercedes would be banned if the parent company has a Chinese shareholder above five percent. That's a significant escalation. Normally, CFIUS — the Committee on Foreign Investment in the United States — reviews national security risks on a case-by-case basis. This bill bypasses that entirely with a blanket rule. Luna: It feels like a pretty direct shot at China's influence in the global auto industry. But beyond the headline, is this bill likely to pass? Lucas: It has bipartisan cosponsors in the House and Senate. The political climate is definitely there — China hawkishness is one of the few issues both parties agree on. But it's not law yet. It's been referred to committee. And there's pushback from business groups and even some free-trade Republicans who worry about the precedent. Luna: What about the Chinese response? If this passes, Beijing could retaliate against US automakers in China. GM and Tesla sell a lot of cars there. Lucas: That's the big risk. China is the world's largest auto market. GM sells about 2 million vehicles there annually. Tesla's Shanghai gigafactory produces over half its global output. Retaliation would be painful. And that's probably why the bill hasn't moved faster — the potential blowback is enormous. Luna: So it's a trade-off between national security and market access. But the trade deficit data we're seeing this year doesn't help the case for free trade. Imports are still outpacing exports by a wide margin. Lucas: Yeah, the latest trade balance for goods and services came in at a deficit of about 60 billion dollars in March, down slightly from February but still wide. And the trade-weighted dollar index is at 119.3 — near historic highs. That makes imports cheaper and exports more expensive, so the deficit persists. That gives lawmakers ammunition to argue that foreign ownership is a vulnerability. Luna: Right, the strong dollar is a headwind for US exporters, but it also makes it harder to argue for open markets when the trade gap is so big. So the Mercedes bill taps into that sentiment — it's not just about China, it's about protecting US industry. Lucas: Exactly. And this is where it gets interesting for international business. The bill sets a precedent that ownership structure can disqualify a company from a market, even if the operations are local. That's a new kind of tariff — a structural one. It could reshape how multinationals think about their shareholder base. Luna: Meaning companies might start screening investors for geopolitical risk, not just financial risk. If you're a European automaker, you might think twice before taking Chinese capital. Lucas: Precisely. And we're already seeing that in other sectors. Semiconductor companies have been doing it for years. But this would extend that logic to the auto industry, which is far more integrated globally. The supply chain for a single car crosses dozens of borders. If ownership becomes a barrier, the whole network has to adjust. Luna: What's the timeline here? When would we know if this bill becomes law? Lucas: Congress is in session through the summer. The bill could come up for a vote in the House as early as July. If it passes, the Senate would follow. But given the potential economic fallout, it might get watered down — maybe a higher threshold, or exemptions for companies that already have US manufacturing. Luna: Or maybe a longer phase-in period. 180 days is aggressive for a supply chain shift of this magnitude. Lucas: Right. The auto industry plans years ahead. You can't unwind a nine-point-seven percent stake in six months without major disruption. So the most likely outcome is either the bill dies in committee, or it passes with amendments that soften the impact. But the signal is already clear: Chinese ownership in strategic industries is under scrutiny like never before. Luna: And for Mercedes, even if this bill doesn't pass, the threat alone could affect their stock. Investors hate regulatory uncertainty. Lucas: Yeah, Mercedes shares are down about 8 percent year-to-date. The bill adds another layer of risk. But it's also a reminder that in today's trade environment, geopolitics can override business fundamentals overnight. Companies that thought they were insulated by local production are finding out that ownership matters just as much as operations. Luna: So for someone in international business, the takeaway is: map your ownership structure now, because the rules of engagement are changing. Lucas: Exactly. The era of purely financial cross-border investment is giving way to a world where every stake is scrutinized for national security implications. The Mercedes bill is just one data point, but it's a telling one. And it raises the question: which industry is next?