Driving around Trump’s tariffs
Less than a fortnight into President Donald Trump’s trade war with China, global carmakers have shown there are ways to bypass the battle — and are scoring a win for Beijing in the process.
Tesla and BMW are among the biggest potential losers from Beijing’s retaliatory tariffs on car imports from the US because much of their production is based in America.
The two companies are now doubling down in China: last week, Tesla announced plans for its first factory outside the US, while BMW is poised to become the first foreign manufacturer to own majority control of a Chinese car venture. Cars made in China by foreign brands will dodge import levies.
While those deals have taken months — if not longer — to come together, the investments by Munichbased BMW and Palo Alto, Californiabased Tesla back up Beijing’s claim to be continually opening up its economy and help rebut allegations of protectionism from the Trump Administration.
“China is not backtracking, which is China’s most clever response to the trade war,” says Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis in Hong Kong.
China and the US imposed 25 per cent tariffs on US$34 billion of each other’s imports on July 6, and Beijing has vowed to fight back against proposed tariffs on an additional US$200b in Chinese goods in the titfor-tat proposals between the world’s two largest economies.
It’s against that background that Tesla announced its China plant.
“This is not only an achievement of China’s self-initiated opening up, it is also an embodiment of win-win economic cooperation between China and the US,” said Gao Feng, a spokesman for the Ministry of Commerce in Beijing.
Trump has criticised Harley-Davidson since the motorcycle maker said it would move some production overseas as a result of retaliatory levies by the European Union. Encouraging carmakers such as Tesla and BMW to increase domestic investment can be seen as a notch in China’s favour in the trade war.
BMW is set to be the first foreign car company to take control of its Chinese enterprise under an agreement between China and Germany, says China’s Foreign Ministry.
The luxury carmaker will soon reveal a new ownership structure of its joint venture with Brilliance China Automotive Holdings, according to a person familiar with the plan.
No such deal with the US has been announced, although China plans to eventually scrap the rule requiring joint ventures in the automotive industry by 2022.
Tesla, the biggest name in electric cars, sealed a crucial agreement to build a fully owned plant in China, only its second assembly line anywhere in the world. The first car will be locally produced in about two years, and the factory will eventually have capacity for 500,000 cars a year.
“Going forward, I expect China to open more selectively to EU companies than to US ones,” says Natixis’ Herrero.
I expect China to open more selectively to EU companies than to US ones. Alicia Garcia Herrero