Weekly News Review | 16 April 2018 | Automotive Purchasing and Supply Chain Automotive Purchasing and Supply Chain

Talking Point

Trump’s torrid tariff moves may pay off

As we prepare for our exciting Automotive Leaders Summit and Automotive Global Awards in Detroit on April 16 and 17, I thought it opportune to reflect on the US automotive industry’s place in the global market, a subject that cannot be considered without reviewing the current state of the possibility of a trade war between the US and China.

With the news that Chinese President Xi Jinping has promised to open the country's economy further and lower import tariffs on vehicles, one has to admit that perhaps Trump’s approach, while seeming heavy-handed at first, might just be the right way to wield a big stick, in the expectation that his opponent will make concessions, if not back down completely.

In response to the US leader’s threats of swingeing tariffs on everything from raw materials to finished goods (and vehicles one day, when Chinese autos are marketed in the US), President Xi has promised that China will enable greater market access for foreign investors. Beijing has also intimated that China will ease restrictions foreign carmakers in the country, with the possibility that incoming investors might be able to take a majority stake, larger than the current limitation of 50%, of any joint venture and possibly be permitted to set up their own wholly-owned trans-plants. As for intellectual property, President Trump has long argued that the Chinese have previously forced foreign companies into joint ventures in order to harvest their technology and then reverse engineer products and sell them back to the west.

With the global proliferation of information and technology through the Internet, and the financial might of China’s industrial base as evidenced by companies such as Geely, this argument is becoming less relevant but it still stirs the blood in many parts of the US such as the ‘Rust Belt’ areas of the country where support for Trump’s promises of a better deal for American workers helped him into office.

The US president also needs to take a closer look at the figures in this trade dispute; to some extent he is negotiating to the advantage of non-US carmakers. The real winners in reduced tariffs on vehicles imported into China would be European (specifically German) and Japanese brands, as almost all the US-brand vehicles sold in China are manufactured there, it is the premium vehicles from outside the US that are paying the highest import duties.

Even with all these caveats to the President Trump’s sabre-rattling style of negotiation, one must admit that he has got the Chinese government’s attention in a way that previous US leaders have signally failed to and for this at least he must be congratulated.

Sam Ogle

Simon Duval Smith

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