Manufacturing News

Trump's trade war casts dark shadow over China

U.S. President Donald Trump's real estate family business is not known to have bought or sold cars in China. But Trump is exerting major pain in China via the trade war he initiated three months ago.

Unless he can resolve bilateral trade disputes with his Chinese counterpart at the Group of 20 summit late next month in Argentina, his trade war will continue to weigh down on vehicle demand in China.

New-vehicle sales for September haven’t been tallied and released. But the fact that most automakers posted sharp declines last month shows the downturn in the Chinese car market has accelerated.

Among major carmakers in China that have disclosed September results, a limited few such as Toyota Motor Corp. and Greely Automobile Holdings have managed to maintain growth.

The most notable companies to post declines are General Motors and Volkswagen Group, the two largest carmakers in China.

GM, which now releases only quarterly sales results for China, told Bloomberg that its local deliveries fell 15 percent in the third quarter.

VW Group hasn’t released sales for September. But it disclosed this week that sales at VW brand, the largest car brand in China, dropped 11 percent last month.

Most global automakers avoid talking about politics when explaining their performance in the market. But VW is breaking from tradition.

The German auto giant pointed out that behind VW brand’s sales slump was “the marked general uncertainty” facing local consumers amid the ongoing trade disputes between China and the U.S.

“This has resulted in considerable reluctance on the part of purchasers throughout the market,” the company added.

To reduce its long-standing trade deficit with China, the U.S. placed 10 percent tariffs on $200 billion worth of Chinese goods on Sept. 24, after slapping Chinese imports valued at $50 billion with 25 percent tariffs on July 6.

The tariffs came as the Chinese economy including the auto industry were already weakening. China’s gross domestic product growth slowed to 6.7 percent in the second quarter from 6.8 percent in the first quarter.

After Beijing started a crackdown in May on numerous noncompliant peer-to-peer online lending platforms -- an important source of auto loans for young car buyers -- the growth in new-car sales dipped to 2.3 percent in June from 5.1 percent in the first five months.

Sales also fell in the next two months, decreasing 5.3 percent in July and 4.6 percent in August.

Trump has repeatedly warned he will expand the tariffs to all U.S. imports from China at the beginning of next year if Beijing does not agree to terms he has set for resolving bilateral trade disputes.

But the Chinese government has refused to back down. Instead, it retaliated again last month by imposing tariffs on $60 billion in U.S. imports.

China has long been called the World’s Factory and the U.S. has been the largest export market for Chinese products for years. A full-blown trade war with the U.S. is bound to sap China’s economic growth at least soon.

JPMorgan predicted in a report last week that China’s GDP growth will be dragged down by 1 percentage point if Trump slaps tariffs on all Chinese goods. The U.S. bank also warned that Trump’s tariffs would indirectly affect consumption in China while directly hitting exports from the country.

“Higher tariffs are squeezing Chinese manufacturing’s profit margins, reducing the investment incentive and hiring, which would then drag on consumption via reduced income,” the bank noted.

What JPMorgan warned about has already taken place in the country’s car market, judging by the dismal sales figures many automakers have released.

Automakers in China must prepare for the worse-case scenario if Trump and Chinese President Xi Jinping leave the G-20 summit in Buenos Aires next month without a deal between them.

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