A multitude of topics, including new tariff policies, are being discussed during trade talks between China and the United States. Specifics have yet to be revealed as business experts from their respective diplomatic corps negotiate under highly confidential conditions.
Uncertainty over tariffs pertaining to completed vehicles and auto parts shipments is of particular interest to industry executives as the bargaining continues.
“Things are in a state of flux regarding these tariffs,” notes Margaret Beck, spokeswoman for the Motor & Equipment Manufacturers Association (MEMA).
“We hope the U.S. can work together with China, accelerate negotiations and make concrete efforts towards the goal of terminating trade tensions,” says China’s State Council, or cabinet, as reported by the South China Morning Post.
China has put a hold on its tariffs, a move aimed at “continuing to create a good atmosphere for the ongoing trade negotiations between both sides,” according to the State Council. “It is a positive reaction to the U.S. decision to delay tariff hikes and a concrete action adopted to promote bilateral trade negotiations.”
“We don’t actually know what will happen with the trade negotiations,” says Bernard Swiecki, senior analyst at the Center for Automotive Research (CAR) in Michigan. “In all likelihood things will get more expensive; either higher prices from China or manufacturing will be done somewhere else,” as in other nations offering similar lower-wage workforces.
President Donald Trump has been expressing confidence that a satisfactory agreement will ultimately be reached. China is temporarily suspending an additional 25 percent tariff on 144 U.S.-made vehicle models and their respective parts. Another 5 percent tariff applied to 67 other imported American auto parts is also being held in abeyance, while a 15 percent duty on all auto imports remains in place.
MEMA “is pleased to learn that the Trump Administration has reached what reports call ‘a truce,’ which could reduce the risk of an ongoing trade dispute with China. We are encouraged by reports that President Trump has agreed to hold off on new tariffs and that China President Xi Jinping has pledged to increase Chinese purchases of American products,” according to the organization. “We hope that this will serve as a starting point for additional negotiations, and an agreement in the future that will allow U.S. companies to remain competitive in a global marketplace while protecting intellectual property rights.”
Placing tariffs “on hundreds of billions of dollars worth of imports from China will serve only as a tax increase on the American public and consumers by increasing the costs of a new car or truck and of maintaining the hundreds of millions of vehicles currently on the roads,” MEMA contends.
In addition to “repeatedly and consistently” pointing out its position to Trump and the negotiating team, “MEMA also has repeatedly urged the Administration to protect intellectual property in more effective and targeted means rather than broadly applied tariffs. The protection of intellectual property is a critical issue for MEMA and its members, and for decades MEMA has advocated for strong global protections of IP investments.”
“The rest of the world agrees with the United States – and they have for quite a while – that the Chinese are stealing intellectual property,” says Dr. Marina Whitman, professor emerita of business administration and public policy at the University of Michigan, who was also chief economist at General Motors and the automaker’s first female group vice president.
A preliminary pact between the two nations reportedly consists of about120 pages addressing issues such as the forced technology transfers associated with having to establish joint ventures with Chinese firms, the poaching of intellectual property and other troublesome trade barriers not directly connected to the tariff tiffs.
From the perspective of negotiators on the American side, “what they’re really concerned about is the way the Chinese are treating intellectual property and enforcement” guarantees of a subsequent agreement. “From practical experience they do not trust the Chinese to deliver on what they promise,” Whitman tells Aftermarket Business World.
“Recently there’s been a lot of emphasis on Chinese scholars in the United States because they were using their work to get access to intellectual property,” she points out. “It is clear that they want to become a leader in high-tech industries. People have suffered from ‘China shock’ when China entered the world market.”
Supply chain adjustments
Trump’s stated eagerness to enact more tariffs in reaction to a trade disagreement with any country is contrary to implementing an effective American economic strategy, according to Whitman.
“The consumers are paying the costs of the tariffs, not exporters,” she explains.
As for a protectionist policy, “For companies producing cars in the U.S., I can’t imagine that they would regard imported Chinese cars as a threat at the moment; they’re more concerned that their costs will go up – more than cars from Europe,” says Whitman.
“This has raised the cost of all the producers in the U.S. who have used Chinese parts in their cars – which is probably all of them – which increases the cost of their cars,” she notes. “Some of the companies have covered these costs themselves, and some have passed them on to consumers. And this is making life tougher for us.”
“The number of vehicles we import from China is minor,” according to CAR’s Swiecki. “The major impact is on the parts and components trade with China; many of those are used are used by the aftermarket.”
At present the trend among aftermarket manufacturers is that “they’re adjusting their supply chains but holding back on making major changes until they know what we’ll end up with,” he reports.
“These are economy-wide negotiations; they’re not just about automotive. The actual negotiations are done by diplomats,” working under the purview of the U.S. Trade Representative’s office, says Swiecki. “They have their own experts in every industry. There’s an entire process.”
Entering a new phase
“The United States and China will likely reach a trade deal, but this will hardly be the breakthrough that ends a deep-rooted conflict,” observes Yale University’s Dr. Stephen Roach, former chairman of Morgan Stanley Asia and author of the book, Unbalanced: The co-dependency of America and China.
“Instead of popping champagne when such a deal is reached, government officials and investors should think ahead to unresolved structural issues that remain – over technology, intellectual property rights, state-sponsored industrial policy and forced technology transfer through joint venture arrangements – all pointing to a protracted conflict long after the ink dries from another glitzy signing ceremony,” he asserts.
“America does not have a monopoly on existential fears as this relationship veers off course. China has deep-rooted concerns that that the United States is fixated on a ‘China containment’ strategy – doing everything in its power to throw up obstacles to the next phase of Chinese development. While Trump’s tariffs underscore these concerns, they follow on the heels of the Obama Administration’s ‘Asia pivot’ and Trans-Pacific Partnership ambitions – with the latter excluding China from its original 12-nation framework,” says Roach.
“Inasmuch as I do not expect China to capitulate on its core economic strategy, there is a strong likelihood of a protracted struggle between two systems – call it Cold War 2.0, he continues. “This, of course, would contrast with Cold War 1.0, more of a military struggle between the United States and the former Soviet Union.”
At a press conference hosted by Gao Feng of China’s Ministry of Commerce earlier this year, the government made a point of welcoming foreign investment in its automotive market. “The demand is huge for new energy vehicles (NEVs) and other automobile products in China as the market is entering a new phase that features diversified demand and quality-oriented purchases,” according to Feng.
There are big opportunities in the country’s smaller towns, the China Daily reports. “Automobile markets in China’s third- and fourth-tier cities are showing strong momentum and the demand for vehicles there is expected to grow, boosting the country’s auto industry.”
The Chinese middle class is expected to encompass 81 percent of the population by 2022. “Meanwhile, the proportion of middle class in China’s third- and fourth-tier cities will grow most rapidly to 40 percent by that year.”
The China Daily further observes that “compared with the white-collar workers in metropolises, the middle class in third- and fourth-tier cities have more disposable property and spending power. Since housing, commodities and services prices in the lower-tier cities are relatively low and there is less work pressure and more leisure time, the middle class there generate a higher demand for superior products and brands.”
