Tariff Threats: How US-China Trade Tensions Impact the Auto Industry.
The ongoing trade tensions between the United States and China have been making headlines for over a year now, and the impact of these tensions is felt across industries. One of the industries that has been hit particularly hard by this trade war is the auto industry. The threat of tariffs being imposed on automobiles and automobile parts has put the industry on edge, with both American and Chinese automakers trying to navigate this uncertain landscape. In this article, we will explore the current state of affairs in the auto industry and how these tariff threats are affecting it.
The Impact of Tariff Threats on the Auto Industry
The auto industry is no stranger to tariffs as a form of protectionism. However, the current trade tensions between the US and China have taken this to a whole new level. In September 2018, the US imposed a 10% tariff on $200 billion worth of Chinese imports in response to what it saw as unfair trade practices by China. This list included auto parts such as engines, transmissions, and brake pads, and was one of the largest ever tariffs imposed on Chinese imports. In response, China retaliated by imposing tariffs on American goods, including automobiles, causing a ripple effect in the auto industry.
Increase in Car Prices
The most immediate impact of these tariff threats on the auto industry is the increase in car prices. The tariffs on auto parts have increased the cost of production for automakers, which in turn has led to higher prices for consumers. According to estimations by consulting firm AlixPartners, the average price of a new car in the US could increase by $5,800 if a 25% tariff on imported auto parts is imposed.
Moreover, the retaliatory tariffs by China on American cars, which went from 15% to 40%, have made American-made cars costlier in the Chinese market. This has resulted in a decline in American car sales in China, the world’s largest automotive market.
Uncertainty in Supply Chains
The auto industry operates on a global scale, with parts and components being sourced from different countries and assembled in different locations. The imposition of tariffs on auto parts has caused uncertainty in supply chains, making it difficult for automakers to plan and procure their supplies. This has led to delays in production and increased costs for automakers.
Additionally, the Chinese government has also started promoting domestic production of auto parts, further complicating the supply chain for overseas automakers who rely on Chinese suppliers for certain components.
Investment and Job Losses
The threat of tariffs has also deterred investments in the auto industry. With an uncertain future and the possibility of higher costs, automakers are holding back on investments, leading to a slowdown in expansion plans and job losses. According to the White House Council of Economic Advisors, the tariffs could result in the loss of over 190,000 jobs in the auto and auto parts sector.
The Impact on American Automakers
The auto industry in the US is not a stranger to competition from foreign automakers. However, with the tariffs imposed on auto parts, American automakers are at a disadvantage as they rely heavily on imports for certain components. This has led to concerns about the competitiveness of American cars in global markets. Furthermore, the increase in prices in the domestic market could result in a decline in sales for American automakers.
The Big Three American automakers – General Motors, Ford, and Fiat Chrysler – have already reported a decline in sales in the Chinese market due to the retaliatory tariffs. This is especially concerning for GM, which sells more cars in China than in the US.
The Impact on Chinese Automakers
On the other side of the equation, Chinese automakers are also facing challenges due to these tariff threats. The Chinese government’s retaliation has made American-made cars more expensive, leading to a decline in sales. This is particularly concerning for Chinese automakers who partner with American companies or rely on American suppliers for their production.
Moreover, the tariffs have also disrupted the Chinese government’s plans to turn the country into a major exporter of cars. With plans to increase exports to the US, the tariffs have put a dent in these ambitions.
Conclusion
The tariff threats between the US and China have put the global auto industry in a state of uncertainty. The increase in costs, supply chain disruptions, and job losses are some of the immediate impacts being felt in the industry. Both American and Chinese automakers are facing challenges as they try to navigate this trade war, and the impact of these tensions is being felt by consumers in the form of higher prices. While the future remains uncertain, it is clear that the auto industry is one of the many industries caught in the crossfire of this ongoing trade war.
