The inhibition of the car market forced China to go on a truce in the trade war with the United StatesDecember 18, 2018
The Chinese government announced today that it is freezing the growth of tariffs on imported American cars for three months. This measure should at least slightly dampen the dramatic drop in demand recorded in the Chinese car market in recent months.
Experts predicted the stagnation of the Chinese car market three years ago, but it happened in 2018, and the trade war between the United States and the People’s Republic of China, unleashed by Donald Trump, became its catalyst. In the second half of the year, the demand for cars in China is steadily falling: in October, sales sank immediately by 12.7%, and this after 28 years of strong growth, during which the Chinese car market became the most important and largest in the world.
The Chinese government, of course, is taking preventive measures: this year it allowed foreign auto companies to gain control over their factories in the People’s Republic of China, whereas previously only ownership on an equal footing (50/50) with some local partner was allowed. Removing this restriction should spur overseas companies to produce even more cars in China, provide more attractive prices for consumers and disperse the Chinese economy altogether. BMW has already taken advantage of the new conditions, announcing its intention to increase its share in the BMW Brilliance Automotive JV from 50 to 75% and invest 3 billion euros in expanding local production. Also, Tesla has finally announced its intention to build a plant in the USA.
As for the tariff war, it only aggravated the crisis in the Chinese car market. China gets more cars from the USA than it imports there. For example, last year, American factories shipped 280,208 vehicles to Chinese dealers, and only 53,300 vehicles were shipped to Chinese enterprises. It is clear that for the 28 millionth Chinese car market, these are crumbs, but then the psychological effect should not be discounted. Trump, eager for a fair trade balance, raised duties on cars assembled in China from 2.5 to 27.5%, which brought down Chinese companies ’plans to enter the American market (Zotye, however, doesn’t stop even duties). In response, China raised its duties on American cars from 15% to 40%, making the existence of the newly built American Volvo plant, meaning to produce cars for China, meaningless. The American divisions of BMW and Daimler claimed multimillion-dollar losses, top managers recently met with Trump in the White House and explained that such a state of affairs is no good.
Trump seems to have realized that he has gone too far: after meeting with top managers of German automakers and announcing the creation of an alliance between Volkswagen and Ford, the threat of a full-fledged trade war between the US and Europe has greatly diminished. In turn, Trump’s talk with PRC leader Xi Jinping on the sidelines of the G20 summit in Argentina led to a temporary truce in the trade war between the United States and China, which the Chinese leadership officially announced today. In exchange for a three-month (from January 1 to March 31) freezing duties on American cars, the United States promises not to increase the duty on Chinese goods worth $ 200 billion from 90% to 10% for 90 days. During the truce, the parties must agree on a new, compromise tariff policy and fix it for a long time. The automakers of both countries pray that the rulers of the superpowers will shake hands and stop scaring the markets – they already have something to fear.