On 23rd March, the US imposed new tariffs on steel and aluminium imports. Then, on 2nd April, China imposed new tariffs on 128 categories of products. On 3rd April, the US published a list of 1,333 Chinese exports that could face 25% tariffs (about 10% of the products are transport-related).
On 4th April, China announced that it would impose an additional 25% tariff on 106 US-made products across 14 categories, including key exports from the US such as cars (about 30% of the products are transport-related). This could, potentially, bring the tariff on US-made cars up to 50%, which would hit US automakers’ exporting to China, push up the price of US-made cars in China, and result in lower sales of US-made cars in the country.
According to Evercore ISI, German automakers export around 115k vehicles from the US to China annually, while US automakers other than Tesla export around 29k vehicles to China. Tesla makes all its cars in the US and exported around 17k vehicles to China in 2017, accounting for about 17% of its revenue. The additional 25% tariff could have significant impact on Tesla’s revenue, however, Tesla already announced plans to set up a plant in China last year, which could allow it to avoid the heavy tariffs.
Roskill view: In early March, the Chinese minster of Commerce said that China planned to cut the tariff on imported automobiles. Since then, the tit-for-tat China-US ‘trade war’ has triggered the possibility of increasing the tariff on automobiles instead. The US tariff list includes product categories in aerospace equipment, industrial robots, motors for electric vehicles, satellites and semiconductor parts. It suggests that the US government is targeting China’s industry blueprint ‘Made in China 2025’.
The US has a 60-day public comment period on the plans, and China will impose its own plans depending on the US’s actions. There is still high uncertainty between the two countries but it is hoped that a compromise can be found to avoid damaging businesses on both sides.