How American cars are really
sold in China, 4/10/18.
Chinese President Xi Jinping's pledge to lower tariffs on US cars sounds like great news for American workers and companies. In some respects, it is.
Most of the cars sold in China by iconic US automakers are made in China.
German automakers with US factories actually stand to gain the most. The US factories for BMW and Mercedes could be the big winners if the tariff is pulled. But they too make cars in China.
China often says it will cooperate on trade. And then doesn't
US auto exports to China have already
been surging, despite the current 25% tariff. In 2017, the United States sent
$10.5 billion of cars — new and used — to China, up from $1.1 billion in
2008, according to the US Census Bureau. Last
year's exports were up from $8.8 billion in 2016.
With
a lower tariff, car companies in the United States would presumably be able to
export more cars to China, the world's biggest consumer market. That would
benefit American workers. But a few realities make Xi's promise a little less
exciting.
Brazil is
the world’s #1 producer and exporter of beef. This is
country is also the #4 food provider in the world.
President
Donald Trump often mentions that the United States has only a 2.5% tariff on
Chinese cars imports. His argument is that the playing field isn't level. On a
tariff basis, that's true. In reality, the tariffs haven't stopped automakers
in the United States from shipping cars to China.
The
United States imported $1.6 billion in new and used cars made in China last
year, roughly six times less than US auto industry exports to China, according to the Census Bureau.
America's
most iconic automakers, such as Ford and General Motors, already make cars in
China for Chinese customers in joint-venture factories. That means Ford and GM
partner with Chinese firms to make and sell cars.
China
is GM's biggest market and has been for six years straight, according to the company. Both Ford and GM
manufacture the majority of their cars sold to Chinese customers in China. The
25% tariff doesn't apply to cars made in China.
From
January to October last year, Ford sold 939,000 cars in China, but only 2% of
those were imported, according to the company's most recent
report on China.
GM
and Ford do
export certain models from the United States to China, such as the Ford F150
Raptor. But those models make up a small share of overall sales in China.
The
bottom line: It's more cost effective to make cars in a region where they will
be sold. That's one reason why Ford and GM build cars in China, rather than
ship them from America. By the way, Japanese automakers like Toyota and Honda
follow the same principle: They make most of the cars they sell to US customers
in North America.
BMW
is the largest auto exporter in the United States by value with its plant in
Spartanburg, South Carolina, according to the automaker. It's unclear how
many cars made in Spartanburg go to China. BMW didn't respond to a request for
that information.
Mercedes
has a plant in Vance, Alabama. A Mercedes spokesperson said the majority of the
SUVs it produces in Alabama are exported around the world, but declined to
provide China-specific data.
As
major auto exporters with US operations, BMW and Mercedes would benefit more
from China lowering its tariff than the iconic American automakers. But even
the German car companies make the majority of their cars sold to Chinese
customers in China.
Mercedes
sold 170,000 cars in China between January and March, and more than two-thirds
of which were cars made in China, according to a press release last week.
BMW
sold 517,000 cars in China in 2016. Its plant in Shenyang, China, produced
305,000 autos that same year, according to the company's most recent
annual report. It can't be assumed that BMW's cars made in America fill in the
gap between those two figures. The company also exports certain models from
Germany to China.
It's
still unclear how much would be accomplished by removing the tariff. BMW and
Mercedes sell to wealthy clientele who can generally stomach the higher price
tag a 25% tariff can cause.
Chinese
officials said last fall they would lower auto tariffs, but
they provided no time line. Xi didn't provide any timing either on Tuesday.
Xi's
appeasing comments also stand in contrast to rhetoric from China's Foreign
Ministry, which on Monday said trade talks with the United States would be
impossible "under current circumstances." Between Monday and Tuesday,
neither nation changed its proposed trade tariffs.
Xi
has been China's president since 2013 and this year he was effectively granted
the presidency for life. So far, he has defied calls to meaningfully change
China's trade behavior. It remains to be seen if his words will translate to
action.
CNNMoney (New York)First published April
10, 2018: 1:48 PM ET
Norb Leahy, Dunwoody
GA Tea Party Leader
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