- An ongoing imbalance in trade and tariffs within Chinese and American auto sales and manufacturing will likely be addressed by the Trump administration during an April meeting between President Xi Jinping and President Donald Trump, Axios reported last week.
- Currently, the terms are as follows: U.S. automakers pay import tariffs of 25% for sales, severely limiting the number of American-made vehicles exported to China.
- Further, U.S. automakers that manufacture in China are legally required to form joint ventures with Chinese companies, ensuring foreign ownership rates of 50% or more. By contrast, the U.S. tariff rate for Chinese cars is 2.5% while foreign car companies within the U.S. own all aspects of their manufacturing and sales.
Contrary to common perception, President Trump is unlikely to apply unilateral tariffs on countries believed to be benefiting from America's lenient trade policies, but rather seeks to draw an end to what are believed to be "unlawful practices" that negatively impact U.S. trade, particularly in China.
The auto industry is a good place to start, as there is a heavy trade imbalance for both completed cars as well as auto parts. Trump does have leverage to influence China's policy, creating a better reciprocity, but with regards to completed autos, his plan may be hurt by the fact that China's auto industry is primarily comprised of a number of smaller manufacturers that produce low-cost models, making the likelihood that they would build plants within the U.S. unlikely. However, the auto parts industry holds more promise, as Chinese companies such as glassmaker Fuyao has already set up shop in Ohio to serve the domestic markets.
The outcome of the probable confrontation with China could provide a template for future bilateral trade deals and how the Trump administration would prefer to negotiate separately with potential trade partners. Leverage is a valuable thing, but precarious too, as Trump seeks to balance competing economics while guarding his pledge to help American companies first.