Sino-US trade warfare fires the entire car circle fryer

The Chinese consumers who want to order Tesla and BMW X5 may be in a roller coaster ride. The tariff increase and decrease caused by trade disputes will bear the brunt of their favorite car price. However, the shadow area in the hearts of American consumers may be even bigger...

01 Trade Dispute: China vs USA

From July 6th, China will impose a 25% tariff on 545 items of approximately US$34 billion worth of imported goods originating in the United States. Among them, 28 categories of automobile products cover off-road vehicles, minibuses, trucks, and gearboxes. And parts, etc., fuel vehicles, hybrid electric vehicles (non-plugged and pluggable), pure electric vehicles and other categories.

This is China's response to and countermeasures against the United States to initiate trade disputes. On June 15, 2018, the US government issued a list of tariffed goods, which will impose a 25% tariff on approximately $50 billion of goods imported from China, including about $34 billion in goods from July 6, 2018. Customs duties will be imposed.

Originally, China officially lowered the import tariffs on complete vehicles and parts on July 1, according to the latest import tariff rate, the vehicle tax rate dropped to 15%. That is to say, starting from July 6, the tariffs on American-made cars will rise from 15% to 40%, non-American cars will not be affected, and 15% of imported car tariffs will still be implemented.

However, Mercedes-Benz, BMW, Audi, Lincoln, Lexus and other car brands have also announced the reduction of the price of their imported cars before the formal implementation of the previous tax reduction policy, and gradually implemented. As a result, they may again re-adjust the price policy.

02 Which car products will be affected?

According to the statistics of the Association, in 2017, China's automobile imports reached 1.25 million, of which 280,000 were from US factories, accounting for 22.4% of the annual imported car sales.

Specifically, in addition to the first-class models of the US brands Tesla and Lincoln, the export models of non-US brands such as Mercedes-Benz and BMW will also be affected.

According to statistics, US-branded products imported into China, such as Tesla Model S/X electric vehicles, Ford brand performance cars, some off-road vehicles, pickup trucks, and all Lincoln brand models, account for the share of sales in China. Not big. For example, Tesla sold about 20,000 vehicles in China in 2017, while Ford exported about 80,000 vehicles to China, including all Lincoln models, as well as performance cars, some off-road vehicles, pickup trucks, etc. It is understood that not all of these 80,000 vehicles are from domestic production.

According to statistics, the majority of the cars produced and exported to China are not American, but German cars, such as Mercedes-Benz GLS, GLE/Coupe, BMW X4, X5, X6, X7, etc. BMW has the largest share. In 2017, China imported a total of 187,400 BMWs, of which nearly 100,000 were produced in the United States.

Therefore, on July 6, a 25% tariff was imposed on US production vehicles, and Tesla, BMW and Mercedes were the most affected.

The BMW Spartanburg plant in South Carolina is located in South Carolina, and BMW's high-end SUV models are produced at the plant. The BMW X3, X4 and X5 have been supplied and supplied by US factories. However, the best-selling BMW X3 has been made in China and listed on the market. For BMW, it is a key model to offset the impact of tariffs.

03 Experts say:

From the impact of tariff adjustments on non-US brands produced in the United States, Cui Dongshu, secretary-general of the National Passenger Vehicle Market Information Association, said: "The tax increase of some models and the tax reduction of some models will disrupt the production line of the company."

However, from the perspective of the impact of tariffs on consumers, senior auto analyst Zhong Shi believes that the tariff imposed on imported cars made in the United States on July 6 has little impact on the market because: Mercedes-Benz, BMW, etc. The models produced by the German brand in the United States are not produced in other places of origin. For consumers, the price cannot be compared, and the tariffs are restored to the original level and can only be accepted.

04 Trade Dispute: US vs Global

Just as China initiated a 25% tariff on imported American cars, car companies from the European Union and Japan are also issuing warnings and protests to the United States. What they are protesting is the threat that Trump issued in May to impose tariffs on US imports of automobiles, parts and components. The Wall Street Journal previously quoted people familiar with the matter as saying that the tax rate could be as high as 25%.

The investigation surrounding this tariff is currently underway. Some foreign media said the investigation will end before the US midterm elections (November), and the fastest is likely to release the results before the end of July.

As the investigation's end date approaches, the protests are getting stronger. At a WTO meeting on July 3, more than 40 countries including China, Japan, and EU member states protested that the United States may impose tariffs on imported cars and parts.

Japan warned that such measures may trigger a series of counter-measures, and the situation is likely to rise sharply, leading to the collapse of the rules-based multilateral trading system.

EU member states and 40 other WTO members warned that given the importance of cars in global trade, US behavior could seriously damage the global market and threaten the WTO system.

In 2017, the value of imported Japanese passenger cars reached US$40 billion. In the same year, the value of imported German-made cars reached US$20 billion.

The large Japanese and European car companies that have been affected by the fear have also warned:

“This will substantially increase the cost of US exports of cars to these markets,” said BMW. “This will worsen the market access of BMWs in the United States, which may lead to a sharp decline in exports, which in turn will result in investment and employment in the United States. Negative impact."

Toyota Motor Corporation estimates that the cost of a car that sells the best in the United States will increase by $1,800 (12,000 yuan) due to component tariffs.

Mazda Motor Co. said that the potential import tariffs of Trump will hit the auto industry and US consumers.

Even the US automakers have said that Trump’s practice of imposing tariffs on imported cars is not good for themselves:

As the largest automaker in the United States, General Motors recently warned that the government's related trade protectionism will lead to a downsizing of enterprises and a reduction in jobs.

05 Conclusion

From the current point of view, the trade disputes provoked by the United States have caused negative impact on the automobile supply chain, producers and exporters. However, if large-scale trade disputes are triggered, it will undoubtedly affect the downstream products of the United States and eventually affect American consumers.