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Automotive Industry Embroiled in US-China Trade War

Shanghai customs agents have disallowed the releasing of a shipment of American-made Mercedes-Benz SUVs. They claim that they represent a safety risk, and have therefore refused those wanting to release it.

Obviously, the Mercedes models GLS and GLE are known to have a problem with the rear brakes, and the authorities say they want those fixed before they entry of the vehicles into the country. However, the timing of the move has many observers raising eyebrows, as mere days before, the Trump administration raised the stakes in the trade battle, which also triggered the Chinese to retort with new tariffs on products that also include autos made by Americans.

According to Joe Philippi, long-time Wall Street automotive analysis, as well as the head of AutoTrends Consulting, this, unfortunately, seems like a part of a tit-for-tat in an escalating trade war, and it could quite possibly crazy levels.

Philippi also said that the Trump administration needs to hope the fight with the Asian giant isn’t going to last long. If it ends in an abrupt cut in U.S. auto exports, it could possibly take its toll on jobs over the next few months. And that is also likely backfiring on Trump and the Republicans, as they said that they didn’t want to hurt the industrial heartland when it is getting so close to the mid-term elections. On the Chinese side, the seemingly escalating disagreement could derail plans for its own auto industry, which has been playing with the idea of more exports.

Chinese Backlash

Responding to the latest tariffs carried out by the Trump administration, China also put a 25 percent tariff on $16 billion in U.S.-made goods. This includes around $10 billion in automobiles that Chinese motorists had expected to buy this year.

The impact can definitely be significant when you think that American-made vehicles were previously saddled with 25 percent tariffs when they reached Chinese shores. For example, on a $35,000 Ford Mustang, duties already put on around $8,750 on top of the base price. By effectively doubling that number, analysts like Phillippi warn that the Mustang, as well as a sizeable number of other U.S. vehicles, can wind up being outpriced of what is now the world’s biggest automotive market.

Ford said in a statement given to CNBC that they will still export some of their best products from the UD. They say this in response to queries regarding the new tariffs. They added, however, that they will lessen the number of their exports considering the limitations on pricing.

Experts say that unless Ford can find different markets for exports like the Mustang, the consequences of such a move could mean the loss of American jobs.

All in all, around 276,000 U.S.-made cars were shipped out to China in 2017. Because of the duties that were in place even at the time, manufacturers wanted to focus on models that had a larger price tag because these came with large profit margins built in, like the Navigator, which is built by Lincoln, Ford’s luxury division.

The Detroit automaker is actually just the third-largest exporter of U.S.-made vehicles to China. At the top of the list is BMW. Like most automotive manufacturers, it has set up a global network of plants, many serving as centers for the production of key products, such as the X5, which it exports to worldwide markets.

Mercedez Benz also implements a similar approach to its production center in Vance, Alamaba. Both companies shift their focus on producing utility vehicles since the United States is the top market for car-based crossover utility vehicles and SUVs. 

Soldiering On, As Of Now

Meanwhile, the trade war is a bad timing for BMW. The said giant car manufacturer recently authorized an astounding $1 billion funds to expand its plant in Spartanburg, South Carolina, its largest manufacturing complex in the world. The said move was supposed to create an additional 1,100 new job opportunities as they produce an all-new X7 model, BMW’s largest and most expensive SUV yet.

Oleg Satanovsky, a BMW spokesman, said they were still moving full speed ahead despite the automaker has previously warned that it might cut back on the project if a global trade war breaks out. However, Satanovsky was quick to add that they will still take a wait and see approach on what happens with the dispute in China, as that market was expected to be a critical one for the new X7 flagship, as well as the X5.

In 2017, most Chinese motorists bought an astounding 52,407 X5s, making the said American-made vehicle the most popular imported vehicle sold in the country. The BMW X3 landed on the second spot with 34,609 sales.

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