Is USA Initiating Global Trade War with Further Chinese and Auto Tariffs?
USA President Trump escalated trade disputes with China on June 18, 2018, saying the USA was prepared to impose 10% tariffs on another $200 billion worth of Chinese goods and potentially even more if China continues to fight back.
The threat was in response to retaliatory measures by China, was the latest trade dispute between the world’s two largest economies. Mr. Trump called it punishment for what he said was an attempt by China to keep the United States “at a permanent and unfair disadvantage.” “China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology,” Mr. Trump said in a statement. “Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong,” he added, calling China’s response “unacceptable.”
The President indicated that the United States would continue tariffs China counters, adding 10 % tariffs to another $200 billion worth of Chinese goods. All told, the Trump administration is threatening to impose tariffs on as much as $450 billion worth of goods, including an earlier round — a sum nearly as large as the total value of goods China sent the United States last year, which was $505.6 billion.
On June 17, 2018, China had accused the US of “blackmail”, raising fears of a full-blown trade war. On June 18, 2018, China’s Commerce Ministry said the country would take “qualitative” and “quantitative” measures and “fight back firmly” against additional tariff measures by the USA government. China’s Commerce Ministry stated: “If the US acts irrationally and issues a list, China will have no choice but to take comprehensive measures of a corresponding number and quality and take strong, powerful countermeasures.”
On June 18, 2018, Secretary of State Mike Pompeo suggested that a sweeping investigation into car imports could result in even more tariffs globally. The Trump administration has already imposed tariffs on steel and aluminum from its closest trading partners including Canada, Europe, and Mexico,; and Mr. Pompeo said that asymmetric trade relationships with Canada, Europe, Japan and Mexico needed to change. In May 2018, Commerce Department began an investigation “following a conversation” with Mr. Trump. The announcement followed a statement from the President, in which he said he had instructed the Commerce Secretary, Wilbur Ross, to investigate imports of cars, trucks and auto parts “to determine their effects on America’s national security.” In a separate announcement, the Commerce Department said that imports of passenger vehicles had grown from under a third of cars sold in the United States 20 years ago to nearly half today, while employment in the sector had decreased. The Commerce Department has announced in the Federal Register that it would hold two days of public comments in July 2018 on its probe of auto imports. The administration launched an investigation to determine whether the vehicle and parts imports were threatening the industry’s health and ability to develop advanced technologies, and could lead to new U.S. tariffs similar to those imposed on imported steel and aluminum in March 2018.
Currently, auto imports into the USA are taxed at 2.5%; with light trucks (pickups and SUVs) being subject to a retaliatory tariff instituted in 1963 by President Lyndon that imposes a 25% tariff on all light truck imports, and in place for the last 55 years. Canada and Mexico are currently exempt from the retaliatory tariff under NAFTA, but this could change given other recent tariffs for steel and aluminum imposed on Canada and Mexico. Given the integration of North America auto sector, Canada and Mexico would be very impacted by these auto tariffs, unless otherwise exempted.
It’s not just foreign-produced autos that would be taxed; higher tariffs on motor vehicle parts are also being weighed in the USA. This could have a major impact on the cost of inputs for domestic vehicle production. According to FactSet’s global supply chain data, Ford has a total of 450 suppliers in the U.S. and across 36 countries, while GM has 482 suppliers in the U.S. and in 38 foreign countries. Not only do domestic automakers rely on overseas suppliers for parts, they rely on overseas markets to sell their vehicles. Motor vehicles exports represent 10% of total U.S. exports to the world. A move to raise tariffs on U.S. motor vehicle imports would most likely result in retaliatory tariffs from key trading partners and have significant impacts on the U.S. auto industry.
The Scotiabank report, NAFTA: Steeling Ourselves for the Macro Costs of Tariffs- June Update (June 14, 2018) at http://www.gbm.scotiabank.com/
Contributed by Magdalena A K Muir
Sources
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NAFTA: Steeling Ourselves for the Macro Costs of Tariffs- June Update, http://www.gbm.scotiabank.com/