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China Takes Trade War Frustrations Out On Ford

Industry News / Comments

This could be the start of a troubling new front in the trade war.

The interesting thing about trade wars is that each side can fine-tune its offensive strategy and hit sectors of its opponent's economy that it thinks will hurt the most. One of the first shots fired in the current war began with the steel and aluminum tariffs the US placed on China. China replied by taxing agriculture imports coming from the US, which hurt regions that voted for Trump.

And after what feels like dozens of blows later, the two countries are still at war with each other. This time, however, China is targeting the US auto industry, just after the US threatened to raise prices on vehicles that are build in Mexico and sold in the US. According to Reuters, China's strike comes in the form of a fine it is imposing on the Ford Motor Company's main local venture with Changan.

The fine comes out to a total of 162.8 million yuan, or $23.55 million at today's rates, which is around 4% of Changan Ford's sales in China last year. So why is China punishing the joint venture, which Ford and Changan each have a 50:50 stake in? Apparently, it's because the firm violated antitrust rules by setting a minimum resale price for cars in dealerships located in China's Chongqing municipality.

"Changan Ford's actions deprived downstream dealers of their pricing autonomy, excluded and restricted competition within the brand, as well as damaged fair competition in the market and consumer's legal interests," said China's State Administration for Market Regulation. While that might sound like a valid argument for fining Changan Ford for installing a price basement, some analysts think that China's move is just a thinly-veiled hit against a company that Ford owns in order to get back at the US for the trade war.

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"Every automaker makes efforts to protect its brand's resale value. Sometimes their actions might be seen as crossing a line such as with price basements," said Michael Dunne, CEO of a consultancy named ZoZo Go and a former General Motors executive. But he iterated that setting minimum resale prices is not an unusual practice in China and that this could be seen as a warning shot to the US.

"China could at any time and for any number of reasons launch a wholesale investigation of any global automaker's operations in China. That is the reality," he said. Adding salt to the wound is the fact the fine comes at a time when sales of Ford vehicles in China are slipping. With American automakers depending heavily on high sales and a strong market presence in China, the world's largest auto market, the country's "warning shot" could end up being a pretty harsh blow.