❝ Will the world’s two largest economies finally come to a fight over the price of cars?
Ahead of a high-stakes summit with Chinese leader Xi Jinping, Donald Trump’s White House has made clear that it isn’t happy with China’s high tariffs on imported American automobiles. These contribute, it says, to the US’s total trade deficit with China, which was $347 billion last year. Former Obama economic advisor Larry Summers also brought up the issue in a recent meeting with China’s premier (paywall), Li Keqiang.
❝ While the US taxes imported cars and cars parts at a maximum of 2.5%, China charges tariffs of between 21% and 30%. This gives foreign automakers who want to sell in China a big incentive to manufacture there to avoid the import charge. But China also requires foreign subsidiaries to operate as 50-50 joint ventures with Chinese companies. These, of course, then become classrooms for Chinese engineers to gain foreign know-how…
❝ Further complicating everything: Now that China is the largest car market on the globe, US firms are reluctant to complain too loudly about the lopsided rules for fear of being cut off completely — US firms and their joint ventures have a major share of the market.
The articles points out some useful contemporaneous constraints. As history, it sucks. The processes described are typical of nations growing from 3rd World to developing and more. As true in Asia as Latin America. I worked in American industries in recent decades where complete products had low tariffs – and parts were charged 30-50% tariffs.
And, then, Japan doesn’t use tariffs at all to exclude American-built cars. They simply set manufacturing standards American companies can’t afford to meet. For decades, now.
❝ Witness the latest annual report from General Motors, which sells more cars in China (3.9 million) than in the US (3 million) and saw its China business grow 13% last year; one in 10 cars sold in China was a GM. “Maintaining good relations with our joint venture partners, which are affiliated with the Chinese government, is an important part of our China growth strategy,” the report said…
And, of course, Trump approaches the whole question in terms most Americans agree with. We’re the biggest and most important export market in the world and everyone should obey. We’re worth it.
As ignorant as Trump – since China’s biggest customer is the European Union and We’re #2.
Probably should mention the largest export market for 33 American states — is China. Gonna be some hollering if Trump starts a trade war.