What does this mean for American automakers selling in China?
Global trade has been put into a very precarious situation lately with US President Donald Trump threatening tariffs against close trade partners like Mexico. Trump was able to avoid a trade war with Mexico but following a 25% tariff on parts and vehicles built in China, China is now ready to retaliate. The Associated Press reports that China will announce tariff hikes on $75 billion of US products in direct response to Trump's planned tariff increases.
Tariffs of 10% and 5% will begin on September 1st and December 15th respectively, matching Trump's planned hikes. It is currently unknown which goods will be impacted. China will also impose tariffs of 25% and 5% on US-made vehicles and auto parts starting on December 15th.
Companies like Tesla, who currently manufacture parts in China for use in vehicles sold in the US, are looking at this issue with great interest and trepidation. The conflict between the US and China could cause economic growth to slow in an economy that has been signaling towards a downturn. Trump and Chinese President Xi Jinping initially reached an agreement to temporarily suspend the tariffs but further negotiations yielded no solutions earlier this year. The two are scheduled to meet in Washington next month to negotiate a resolution.
Trump went on Twitter to say, "Our great American companies are hereby ordered to immediately start looking for an alternative to China," meaning there may not be a solution in sight.
The companies expected to be hit hardest by a trade war are BMW, Tesla, Ford, and Mercedes-Benz. BMW was the largest exporter of cars in the US in 2018 with more than 87,000 SUVs going from Spartanburg to China, the most of any US automotive manufacturer. Around 164,000 vehicles were sent from the US to China in 2018, according to the Center for Automotive Research, which was down from around 262,000 in 2017.
In an effort to avoid losing 12% of its revenue exporting over 14,000 cars from California to China, Tesla is planning to build a factory in China to assemble the Model 3 sedan. Those plans could be put into serious doubt following a response from the US. Trump seems confident he can reach a deal with China saying, "I will be responding to China's Tariffs this afternoon. This is a GREAT opportunity for the United States."