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The Trade War and China's Auto Market

2018-12-18 10:30 Tuesday

Beginning in July, 2018, U.S. president Donald Trump implemented higher tariffs on auto components imported from China. In a similar development, the U.S. Trade Representative announced a new list of tariffs applicable on $200 billion in Chinese products, including auto components, which are expected to come into effect in the near future.

trade war

Higher tariffs inevitably result in higher prices and lower consumer demand. Unsurprisingly, the China Association of Automobile Manufacturers has revealed that  auto sales in China decreased in August 2018 for the third consecutive month.

In fact, it has been Chinese operations of U.S. automakers that have taken the earliest losses.Ford's sales have decreased by 36%, and its goal for one million cars in 2018 appears to be unrealistic. Even European automakers in China cannot escape the effects of the trade war.Geely, owner of Volvo, has delayed its IPO, due to risks associated with Volvo’s new pricing scheme in China.

BMW increased the price of two imported SUVs, X5 and X6 from 30 thousand to 80 thousand RMB, to account for the higher tariff costs. The higher prices have had a predictably negative effect on imports and sales.

China is Tesla's largest foreign market, with two billion USD in revenue in 2017, but increased pricing ranging from 13-25 thousand RMB due to the tariffs, have led to many order cancellations.

Lincoln, the best-selling US auto brand in China, exported 64,738 cars to China in 2017, placing China as Lincoln's seventh largest market. To maintain its market share in China, Lincoln opted to maintain its previous prices, even as the tariff has escalated.

Likewise, Mercedes-Benz increased the price of its GEL and GLS models from  28 thousand to 135 thousand RMB, resulting in a 17% sales decrease in July, 2018.

The trade war between the U.S. and China has had a chain reaction on the auto industry, leading many U.S. automakers to transfer manufacturing and distribution operations to new markets. Neither economy has benefited from the trade war in its early stages, but the impact on the Chinese auto industry has been especially pronounced.

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