There seems to be a developing trade war between the United States and China. Something of this nature will result to losses for both parties and is particularly detrimental for the auto industry. Recently, the Unites States proposed an increase of tariffs on products entering the US from China. And in response to that, the People’s Republic of China is proposing something similar. Unfortunately, their policies cover American cars too.
If you’ve been following news reports, you’d know that President Trump first proposed tariffs of about $50 billion of goods coming into the country from China. Increased taxes applied to products including a number of important car parts like torque converters, lithium batteries, and catalytic converters. This has a huge impact on business involving motorcycles and buses.
Subsequently, China decided to suggest tariffs on $50 billion American products that include cars and planes. Even after this exchange between both countries, President Trump still refuses to call this a trade war. But there’s really no other description for this situation except that. In fact, the President of the Unites States even tweeted about this, saying that trade war is long gone and that it only occurred because of the incompetence of the previous administration.
The New York Times reported that China had a strategy in choosing products to put tariffs on. It’s believed that these goods come mostly from Republican-led states because the politicians there might be able to persuade President Trump to discontinue his initial plan.
Having said all that, the extent of the effect on this in the automotive industry of both countries has yet to be quantified, as these remain to be proposals from both ends. Nevertheless, both parties continue to negotiate. Stephanie Brinley, IHS Markit Senior Analyst, said that it is important for us to note that these tariffs are currently just proposals and have not been implemented yet.
When these go into practice, there’s no doubt that American brands will suffer greatly. But none of this is good for any of the automakers, considering the fact that they are rapidly becoming more globalized and now depend on global supply networks to operate profitably. This statement comes from Ed Kim, who is the Vice President of Industry Analysis at AutoPacific.
A few days ago, General Motors released a statement that cooler heads are necessary to prevail on both sides. This is because the company already imports two models from China into the US, and they will soon be importing the Focus too, while exporting a significant volume from the US to China. What this does is ruin the business models of many brands. Even more than Ford, Tesla will be a victim of higher tariffs, especially because China is one of their major markets.