Trump's wrench for Chinaís automotive gears

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Thread: Trump's wrench for Chinaís automotive gears

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    Trump's wrench for Chinaís automotive gears

    Trump has a giant wrench for Chinaís auto gears

    Anjani Trivedi, Bloomberg News Published 12:18 a.m. ET May 20, 2019

    Link to Bloomberg Article

    To understand the untapped potential as well as the dangers of Donald Trumpís trade war with China, look at auto parts.

    Itís a huge business, worth almost $400 billion globally. China exports more than $70 billion of car parts and accessories every year, about a fifth of which goes to the U.S. Hundreds of Chinese components, from door handles to steering systems, are embedded throughout American-made cars.

    For a U.S. administration looking to exert pressure through tariffs, that might seem like a good place to start. Yet the sector is almost absent from the latest list of tariffs levied against imports from China, save for a few cheap products such as car-door hinges and radio receivers with clocks valued at under $40.

    Such low-margin parts are the least of Chinaís worries. Profits are increasingly concentrated higher up the value chain.

    The sparing of auto parts shows the U.S.-China trade war remains far from an all-out conflict, illustrating how the optics of Trumpís tariffs are more alarming than the reality.

    There are high stakes in threatening disruption to the broader auto industry, as shown by the presidentís decision this week to delay imposing tariffs on U.S. imports of parts and cars from the European Union and Japan.

    China has been opportunistic in building up the industry. It reduced import tariffs on these goods last year, presumably as a show of goodwill but also because the value of U.S. auto parts exported to China is small. Chinese tariffs on imported parts went to 6%, from as much as 25% on body frames and 15% on axles. Thatís helped to support manufacturers as auto sales drop and price competition intensifies.

    U.S. peers, meanwhile, are struggling with rising costs for raw materials (a result of Trumpís tariffs on products such as steel) and large-scale restructurings. In its latest round of tariffs targeted at the U.S., China excluded most auto parts barring a few items such as vehicle seats that are subject to the lowest level of duties at 5%.

    Sales to U.S. and other overseas car companies are a growing revenue stream for Chinese component suppliers such as Shanghai-based Huayu Automotive Systems Co. and Minth Group Ltd., which is based in the port city of Ningbo. Others, like Hong Kong-listed, Michigan-headquartered Nexteer Automotive Group Ltd., have operations in the U.S. and supply the likes of General Motors Co.

    If Trump decides to target Chinaís auto parts industry, he wonít be the first. The sector is no stranger to trade crossfire, having been among the top targets for complaints at the World Trade Organization in the 2000s.

    The U.S., Canada and the European Union all filed cases at the WTO more than a decade ago. At one time, Chinaís tariffs on imported auto parts were so high that they could cost as much as a finished car if a manufacturer didnít meet local content requirements. Other countries contended that this violated Chinaís WTO accession agreement.

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    Re: Trump's wrench for Chinaís automotive gears

    The Chinese have been buying up auto parts suppliers. Trump needs to target them for disruption, force Auto companies to re-invest here. Lastly, No Government owned entities, should be allowed to do business in the United States.

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