US carmakers hit with Chinese tariffs as trade war changes gear

New 25 per cent duties on vehicles and parts targets strategic US sector already facing competition from Europe, with implications for its labour market

PUBLISHED : Thursday, 09 August, 2018, 9:31pm
UPDATED : Thursday, 09 August, 2018, 11:13pm

China has added automobiles to its revised list of US$16 billion worth of US goods targeted by its retaliatory tariffs, removing crude oil in favour of items that could do more damage to the US economy.

The updated tariff list, published by the Ministry of Finance on Wednesday, will slap 25 per cent duties on 333 products instead of the initial 114 identified in mid-June, keeping the total value of the goods unchanged.

The new list removed some imports, including crude oil, from the crossfire. Instead, a vast array of vehicles, scraps and recyclables, petrochemicals, and medical equipment were added to the list, in a move that analysts say will inflict more pain.

The latest measures were a tit-for-tat response to US tariffs on US$16 billion of Chinese goods that were finalised by Washington on Tuesday, with both sides ready to impose the new duties on August 23 in a further intensification of the bitter trade war between the world’s largest economies.

Last year, the total worth of US exports to China in passenger cars, trucks and vehicles, and various auto and engine parts reached over US$13.9 billion.

For the Chinese side, swapping out items on its final tariff list reflects its desire to reduce the impact to its own economy while putting more pressure on US President Donald Trump, who will face critical midterm elections in November.

While some observers said China may have removed crude oil because of energy security concerns, others said it would not have a significant impact whether or not it was on the list.

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China was the second-largest market for US crude oil last year, but that represented only around 2 per cent of China’s total imports of the product, said Lin Chen, an energy analyst for Japanese financial services firm Nomura.

“China has many alternative countries to import from,” he said. “It’s definitely not significant to China.”

Iris Pang, chief economist for China at ING Bank, said putting tariffs on automobiles would have a bigger impact for the US, with its car market facing serious competition from Europe.

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“[The new list] could have more impact than the previous list, because it could also affect the labour market of the auto sector in the US,” Pang said.

Besides passenger cars, minibuses and trucks, the new 25 per cent duties would be imposed on engines and vehicle motors, motorcycles and bicycles, trailers, wheels and even prams.

“The auto sector is a pretty important and strategic industry, for which it is easy to create a market reaction,” said Sophie Shen, a Shanghai-based analyst for PwC.

“In the short term, the overall impact will not be very large ... but in the medium and long term, US automakers such as Ford, which are already struggling in the China market, will find it even harder to rebound.”

Another key addition to Beijing’s latest tariff list was scrap metals and waste. US scrap exporters were also rocked by the Chinese government’s decision to restrict shipments of waste and recyclables, with an import ban on waste products slated by the end of 2019.

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The US exported around US$5.6 billion worth of various types of scrap waste to China last year.

But although China was strategic in targeting products, analysts said officials were probably focused more on minimising the damage to their country’s own economy, which has already felt the bite from existing tariffs.

Beijing has found itself with limited options for follow-up trade measures because of the bilateral trade imbalance, using a range of duties in its threatened tariffs on the next US$60 billion worth of US goods to counter the US’ proposed tariffs on another US$200 billion of Chinese goods.

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“I have a sense that the US thinks this kind of tariff and expected retaliation would not hurt the US and is a zero-sum game, which is not true,” said Pang, from ING.

“The remaining US$60 billion is what China has on the table, and the next very important question is not about tariffs any more, but what kind of qualitative measures China would use – for example, the number of tourists leaving China for the US.”