Features
9 Apr 18

German OEMs pay for US/China trade war

Beijing has not hidden its disappointment about the announced trade war and additional export taxation applicable on goods produced in China and sold in the US. China’s vice minister of Finance, Mr Zhu Guangyao told the press that China will not succumb to external pressure.

It didn’t take long before it became clear what this meant; last week, Chinese officials outlined plans to increase the cost of importing 106 types of American goods into China.Next to agricultural produce and chemicals, US produced cars are in scope for an additional 25% (on top of the existing 25%) of import taxation.

Miss the target?

Surprisingly, these tariffs won’t hit the US manufacturers that much. Ford, Fiat Chrysler and GM have been collaborating with Chinese manufacturers for a long time already and produce most of the cars destined to the Chinese market locally. Tesla might well be the only US manufacturer to suffer directly from the additional taxation. Although exact figures are not available, it’s suggested that Tesla’s sales in China are worth about USD 2 billion, which means that the tariffs will impact Tesla for USD 500 million.

Tesla is planning to build a production unit in Shanghai, but concrete plans have not yet been announced, neither about the expected start date of the construction, nor about the potential joint ventures with Chinese companies.

The Germans pay the bill

The additional auto tariffs will most probably hit BMW and Daimler more than the big 3 US manufacturers. Both German brands produce vehicles in the US that are being exported to China. BMW, for instance, manufactures most of the X-Series in Spartanburg, the South Carolina plant. At equal production and export rates, the impact of the 25% taxation on BMW could reach almost USD 1 billion in 2018. As for Daimler, exact figures are not available, but based on projected sales, the impact could reach USD 765 million.

What are the options?

Neither of the German OEMs have reacted with concrete measures or, as stated in the Daimler press release: “We don’t speculate about ongoing negotiations. We are of course monitoring the situation closely.” Nevertheless, it’s not that hard to read between the lines. BMW has already moved the production of the popular X3 series destined to the Chinese market, to other plants, such as the Rosslyn plant in South Africa and the Shenyang plant in China. It is certain that Daimler’s modern and flexible production lines in alternative countries will also be absorbing additional units for the Chinese market.

NAFTA

If, on top of the North-American measures aimed at the Chinese market, the US would decide to modify or cancel the NAFTA agreement that allows for easy trade with Mexico and Canada, an additional production shift to other countries becomes a likely scenario. This would most certainly impact volumes produced in the US and consequently the sustainability of the US plants.

Conclusion

Most of this is speculation so far, and the WTO will have to try and solve the feud between China and the US. Nevertheless, it has already created a state of uncertainty and confusion amongst the OEMs that will most probably have an impact on growth and development.

Authored by: Yves Helven