Victims of the trade war emerge

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Note: The following is an edited translation of a commentary from the Chinese-language “Commentaries on International Affairs.”

German cars sold to China have risen in price.

Chinese consumers have not spoken out, but US blue-collar workers are beginning to worry. This seemingly puzzling scene is being staged in the context of the trade war provoked by the Trump administration. German cars have been among the first victims of Donald Trump’s tariff policy: the victim on the surface is a German car company set up in the United States, and the potential victims are the employment opportunities of American auto workers.

BMW vehicles made in Spartanburg, S.C., await loading at the port of Charleston on July 16, 2018.  [File Photo: IC]

BMW vehicles made in Spartanburg, S.C., await loading at the port of Charleston on July 16, 2018.  [File Photo: IC]

On July 30th, Germany’s BMW Motors increased the sales price of two of its sport utility vehicles, which are produced in the US and exported to China, by 4 percent and 7 percent respectively due to increased costs. It is not difficult to find the reasons for the increase in costs, as the price of globally-purchased parts for American-made BMWs has risen since the Trump administration launched a trade offensive against multiple countries and on multiple lines. At the same time, as one of the counter-measures against the United States, China began imposing a 25 percent increase on the newly-implemented 15 percent tariff on imported cars from the United States on July 6th. This amounts to a 40 percent tax. This means that the market share of name-brand cars with US origins will be reduced due to price increases.

When the White House fired the first shot in the trade war against its major trading partners by levying tariffs on steel and aluminum, many industry insiders noted that cars and electronic products would likely be the first to bear the brunt. This is because the world’s largest automakers are heavyweight multinationals, with factories around the world. The latest list released by Automotive News in June shows the 100 Top Global Suppliers in 2018 are from 17 countries including Germany, Japan, Canada, Spain, South Korea, Mexico and China. Each car includes up to 10,000 parts and components. From assembly to production, the division of labor among the various suppliers in the global industrial chain is inseparable.

Any small link in the automobile sector, if affected by the current trade war, will disrupt the entire industrial chain. As the Chinese saying goes, “When the city gate catches a fire, the fish in the moat also suffer.” The United States imposes tariffs on steel and aluminum products produced in other countries. This has an obvious trickle-down effect on companies including GM, Ford, and BMW. The Financial Times pointed out that in fact, “Donald Trump has begun dismantling the world known by carmakers as he attempts to implement his election promise to bring back US jobs and tear up international agreements he sees as harming blue-collar voters”.

The ones facing destruction at the hands of Trump also include jobs for American auto workers, the blue-collar voters that he claims to protect every day. Because the US president is letting the “tariff bullets” be fired blindly against the outside world, the steel plates he’s taxing are now being used to deflect those “bullets” back at American workers. The injured are the foreign car companies that set up factories in the United States, which are helping solve the problem of American employment. German company Daimler AG notes that in 2017, 20 percent of its cars manufactured in the United States were sold in China. In the second quarter of 2018, due to the Sino-US trade frictions, Daimler’s net profits dropped by 27 percent. If the tariffs continue, the company says it will reconsider its production layout, including the possibility of establishing a new plant in China.

BMW Motors has its largest auto plant in Spartanburg, South Carolina. BMW has now surpassed local US auto brands to become the largest auto exporter in the US, employing 9,000 staff. Around Spartanburg, there are more than 200 auto parts manufacturing plants from more than 20 countries, each with local employees. Last year, 70 percent of BMW vehicles manufactured at the Spartanburg plant were sold outside the US, with around one-quarter of them exported to China. The New York Times reported a June letter to the US Commerce Department in which BMW said it might cut investment and production in Spartanburg if selling its American-made SUVs abroad becomes too expensive.

As the world’s largest car market for the last nine years, vehicle producers won’t abandon China easily. The subtext being put out by Mercedes-Benz and BMW is already very clear. That is: if the trade war continues, it will be inevitable that they will have to cut production and enforce layoffs in the United States.

The Financial Times has quoted a professional analyst as describing the impact of the trade war on the global automotive industry as a “perfect storm.” “Perfect” in this case means a combination of factors that could yield a fatal blow to the global automotive industry. In meteorology, storms develop through changes in barometric pressure. To prevent US job losses, the White House is the only one with the ability to send the trade winds in the right direction to help create a barometric balance and prevent an automotive ‘super storm.’