Market scenario

Impact of the US-China trade war

| Author / Editor: Ahlam Rais / Ahlam Rais

U.S. automakers in China are the most affected owing to new tariffs from both Washington D.C. and Beijing.
U.S. automakers in China are the most affected owing to new tariffs from both Washington D.C. and Beijing. (Source: Deposit Photos)

The automobile and auto component industry is one of the most affected industries by the trade war. The US and China have been imposing significant tariffs on this industry which has led industry players to increase automobile costs. MM International offers an insight on this subject.

The US-China trade war seems to be going on forever but the recent talks between the two mighty nations will hopefully put an end to this tense situation. The biggest loser in this scenario is business on both sides and from the many industries affected by the trade war, it is the automotive and auto component sector that has witnessed significant damage. According to the World Trade Organisation, the US-China trade war directly affects 3 per cent of global trade, but the automotive industry accounts for 8 %.

How it all began...

Last year, the US Government hiked tariffs for a range of Chinese goods and stated that the move was in response to unfair trade practices by China over the years. As a retaliatory measure of US tariffs, Beijing also increased tariffs for certain goods including automobiles. Thus, the country increased its existing tariff from 15 % to 40 % for US-made vehicles that entered the country. This huge escalation immensely hurt US car manufacturers like Tesla. The Trump administration also increased its existing 10 % additional duties on imports of automotive parts from China to 25 %.

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Problems for U.S. automakers

Now, it is well known that China occupies an important position in the global automobile supply chain industry and many of the auto components used in US vehicles are sourced from China. Thus, US carmakers now have to spend more to source these parts which is leading to an increase in the overall cost of their vehicles and these high costs are borne by US customers.

In a 2018 survey by the American Chamber of Commerce in Shanghai and Beijing-based American Chamber of Commerce in China it was revealed that U.S. automakers in China are the most affected owing to new tariffs from both Washington D.C. and Beijing. The combined tariffs are reducing profits and increasing manufacturing costs for more than 60 % of the survey respondents in the automotive industry, added the report.

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Currently, the trade deal is ongoing but in the automobile industry things have slightly improved. For instance, Tesla slashed the prices of its Model S and Model X cars by 20,000 dollars for the Chinese market and as a goodwill gesture China suspended the additional 25 % tariffs on U.S. vehicles and auto parts. However, these are temporary solutions.

Today, there is an urgent need to solve the trade crisis at the earliest for the benefit of both the countries. We hope that Donald Trump and Xi Jinping can reach an agreement in the near future.

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