In a new escalation of the trade war with China, the President has proposed new tax incentives to get U.S. manufacturers, notably including automakers like General Motors, to bring back jobs.
"We will create tax credits for companies that bring jobs from China back to America,” he announced in a speech last week. “We built the greatest economy in the history of the world and now I have to do it again."
While Trump has repeatedly said that trade wars are “easy to win,” he has so far failed to get the Chinese to yield after nearly three years and is now trying to reach out directly to American businesses.
Asked about the possibility of shifting production back, GM said in an e-mailed statement that won’t happen.
"Our operations (in China) are joint ventures with local companies that overwhelmingly produce vehicles for the domestic Chinese market," the company said in a statement. "We do repatriate the equity income we earn in China back to the United States, where it is subject to tax."
Other U.S. automakers have been expanding investments in China hoping to maintain or expand business in the world’s largest car market – an increasingly difficult challenge as that country’s own domestic manufacturers grow.
Tesla opened its first foreign plant – and only its second assembly line anywhere – late last year in China. With the Beijing government pushing for a shift to electric vehicles to address the country’s endemic air pollution, Tesla expects that market to become one of its most important going forward.
Industry analysts say President Donald Trump's trade policies to date have backfired, sending auto jobs to China instead of saving them for Americans.
Tit-for-tat tariffs on American-made vehicles have made them increasingly non-competitive, forcing manufacturers like GM, Ford, BMW and Mercedes-Benz to turn to local Chinese sourcing. That reduces their exports to what is now the world’s largest automotive market, according to Joe Langley, the associate director of automotive research for IHS Markit.
At the same time, duties on Chinese-made auto goods have increased production costs for U.S. car buyers.
“Vehicles previously exported from (the U.S.) to China are now being relocated there,” said Langley, during a meeting of the Detroit Automotive Press Association.
The auto industry has found itself caught in the middle of the trade war between the U.S. and China, hit early on by tariffs from both sides of the Pacific.
During a brief respite, the Chinese pulled back on those duties. But an extra 25 percent tariff on an American-made vehicles, and 5 percent on imported U.S. auto parts, were reenacted last December when what seemed like a possible détente between the two countries fell apart.
The U.S. exported 192,210 vehicles to China in 2019, according to U.S. government data, up from the 163,618 shipped there the year before – but down from 262,483 in 2017 when the trade war was just getting underway. The record was set under President Barack Obama in 2014 when American plants provided 314,580 vehicles for the Chinese market.
The list of automakers shipping vehicles to China includes domestics Ford, General Motors and Fiat Chrysler. But among those hardest hit are two German manufacturers, Daimler AG, parent of Mercedes, and BMW. Together the two exported over 100,000 American-made crossovers to China last year.
The Bavarian automaker operates a sprawling assembly plant in Spartanburg, South Carolina that has long been the sole global source for its widely popular X5 sport-utility vehicle, as well as smaller models like the X2 and X3. But it added production of the X5 at a plant in Thailand last December, primarily to service the Chinese market. And production of that model and others now produced in the U.S. are widely expected to shift directly into China over the next several years.
"If the tariffs undermine the competitiveness of BMW production and sales in the US, the result could be strongly reduced export volumes with negative effects on investments and jobs in the US," BMW spokesperson Kenn Sparks told trade publication Automotive News.
The tariffs have hit some brands harder than others exporting from the U.S. to China. There is more room to swallow tariffs on high-priced luxury vehicles than on mainstream models from manufacturers like Ford which saw exports plunge by roughly a third for models like its Mustang sports coupe and Explorer SUV last year. Ford has also been expanding Chinese production of high-line models from its Lincoln brand, rather than continuing to rely on U.S. plants.
While automakers might circumvent tariffs by adding Chinese production for models once solely built in the U.S., that approach can add significant costs, anyway. Automakers like to “single source” vehicles, where possible, to maximize their economies of scale, said David Cole, director-emeritus of the Center for Automotive Research. But “if you have multiple plants producing the same model, you lose those economies of scale.”
Cole agreed that the trade wars have, so far, yielded no benefit for the U.S. auto industry, though “any forecast” about how things might eventually shake out “is difficult to make until we see greater stability” in a global economy dealing not only with trade wars by a pandemic.
What is particularly worrisome, said IHS Markit analyst Langley, is that the pandemic will result in about a 20 percent reduction in global vehicle sales this year and could take years before the industry fully recovers.
In the meantime, he anticipated a worldwide “realignment” of manufacturing capacity that could hit the U.S. industry hard.
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August 25, 2020 at 12:50AM
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Trump's trade war drives some auto jobs to China - NBC News
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