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Tariffs on $200 Billion in Goods to Bring Spike in Auto Prices

2018-12-28 09:49 Friday

As China's economy has boomed over the last several decades, car ownership has grown substantially. China now approves more than 1.5 million new vehicle licenses per month, indicating a rapidly expanding population of carowners.


However, the third wave of recent tariffs imposed by the U.S. on $200 billion of Chinese goods may threaten to halt progress in China's auto market. Analysts unanimously agree that new tariffs imposed on auto parts from China will hit carmaker profits, depress sales and threaten to initiate a downward cycle, analysts unanimously agree.

Major carmakers recently expressed concern that the unpredictable trade policies could depress sales.

Ford and General Motors lowered profit forecasts for 2018, ein the wake of higher steel and aluminum prices caused by new US tariffs.

Fiat Chrysler also cut its 2018 revenue outlook after sales in China slumped, as buyers postponed purchases in anticipation of lower car tariffs.

Jaguar Land Rover, the UK's biggest car firm, also recently reported a loss for the first time in three years after sales slowed down in China. Among other reasons, the carmaker noted that many consumers had delayed purchases due to the change in Chinese import duties.

President Trump's latest action will add 10% of extra tariffs on more than 100 categories of car parts, ranging from tires and brake pads to engines and batteries that go into vehicles made and sold in the U.S.

"Tariffs are taxes on consumption. Eventually costs will be passed down to the consumer. This will drive vehicle costs higher. It also includes a lot of body shop equipment," said Peter Nagle, senior analyst at IHS Markit.

Analysts said it is unclear how much car prices will rise to absorb the costs of a trade war, but nearly all agree that prices will inevitably increase, and that parts from China are critical to the global auto industry. The ultimate effect will be a drop in global car sales.

The International Monetary Fund has noted that the trade dispute has already affected the Chinese and US economies, with the major damage occurring due to disruption to domestic and international supply chains.

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