Automotive Investors Could Be Hit Hardest by Tariff Battles

  • Editorial Team
  • April 05 2018
Automotive Investors Could Be Hit Hardest by Tariff Battles

How a trade war could hit US auto manufacturers hardest

The escalation of the US - China trade dispute could land in serious trouble a number of industries, but it's the automakers who are bearing the biggest risk.

As the two powerful world economies are engaging more and more in an on-going trade dispute and threaten tit-for-tat sanctions against each other, some industries have figured out they might be hurt more than others if the conflict escalates further.

So far, a promise of talks between the USA and China has been having a somewhat soothing effect on the markets, however as no reasonable actions are being taken, some investors are becoming more concerned about particular industries that might be caught in the crossfire.

The escalation of the trade dispute could land in serious trouble a number of industries, including aerospace, agriculture, chip manufacturers and the auto industry.

China has warned the USA it would increase tariffs up to 50% on cars and other imported goods from the States as a retaliatory measure in response to the Trump administration’s proposed tariffs on a broad range of Chinese products, including cars and automotive parts.

Automakers in both China and the USA will take the hit; however, US car industry may suffer more as China imports nearly 270,000 US vehicles, worth $11 billion, and sends relatively few back.

In the present situation any troubles for US automakers can turn into bigger problems: last year, the first time since the end of the Great Recession, the US car industry experienced a decline, and some experts say the downtrend will continue this year. No wonder that prospects of trade tariffs don’t add confidence to the industry.

Detroit automakers General Motors Corp., one of the major players in the Chinese market who might face a substantial increase in tariffs on their import, put out a public statement asking both countries to appreciate global trade connections.

“We support a positive trade relationship between the U.S. and China, and urge both countries to continue to engage in constructive dialogue and pursue sustainable trade policies. We continue to believe both countries value a vibrant auto industry and understand the interdependence between the world’s two largest automotive markets.”
GM Statement

California-based Tesla is even in a worse situation than General Motors. Unlike GM that has significant facilities in China, Tesla has none and has yet to negotiate a deal to set up a factory in China. So far it exports all its products from a factory near San Francisco and in case the situation deteriorates, 100% of Tesla’s products will be subject to tariffs.

BMW and Mercedes also produce luxury cars in the US and export them to China.

As to the Ford, it might experience double trouble as it exports premium Lincolns to China and plans to import low-cost Focus compacts from China to the United States.

So far there are hopes that threats will stay just threats as neither side has actually laid out plans for the enforcement of the new tariffs yet. However, it’s unlikely that Trump will pull back. On the contrary, as he warned last month, he would consider tariffs on European cars as well to balance out the “unfair” levies that exist in US - EU autotrading.

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