Trump recklessly wields the tariff stick against China, but why is Germany the one that gets caught in the crossfire?

Trump's tariff stick has been wielded recklessly, hitting no one, including China, Canada, Mexico, Japan, South Korea, and the European Union.

When Trump announced that he would impose a 25% tariff on $50 billion worth of Chinese goods, China immediately retaliated by announcing a 25% tariff on $50 billion worth of American goods, including cars imported from the United States.

Trump wields a big stick, and Germany is caught in the crossfire

The increase in tariffs has brought great uncertainty to all parties in the global market. As an important part of the national economy, automobiles involve many economic sectors, and a single move can affect the entire system. The tariff barriers set by China and the United States against each other in the automobile industry have brought crises and challenges to China's automobile industry, but also implicit development opportunities.

However, behind Trump's reckless behavior, German cars are the most affected.

In 2017, China imported more than 280,000 cars from the United States, and German cars produced in the United States accounted for a large proportion of them, including Mercedes-Benz GLS, GLE, GLE Coupe, BMW X4, X5, X6, X7, etc., which are the most affected.

At the same time, Japanese luxury cars such as Infiniti and Acura were also dragged into the water. There is no doubt that most of these brands are also manufactured in the United States.

American cars have certainly been affected as well, but since many American car companies, such as Chevrolet, Buick, and Cadillac, make most of their profits in China from their joint ventures in China, the impact they have suffered is not as severe as that of German car companies.

However, American cars that do not have joint ventures in China are in trouble. For example, Lincoln and Tesla. After the tariffs were imposed, the tax rate rose to 40%. Lincoln and Tesla had to raise prices in response, and a decline in sales was inevitable. American cars, which were not strong to begin with, fell into a bigger quagmire. The funny thing is that this pit was dug by their president himself.

The number of complete vehicles exported from China to the United States is very small, and some of them are American cars produced in China and then exported back to the United States, such as the Buick Envision and Cadillac CT6 plug-in hybrid version. Therefore, the current trade war has little impact on China's complete vehicle exports.

However, if the trade war continues, considering the development speed of China's automobile industry, the impact of tariff barriers on China's vehicle exports will continue to grow. Some institutions predict that the number of cars imported by the United States from China is expected to reach 500,000 by 2023. After all, tariff barriers are a major obstacle to China's automobile exports.

China's exports of auto parts are currently the most affected by tariffs.

In 2017, the value of auto parts exported to the United States reached 17 billion US dollars, while the value of complete vehicles exported to the United States during the same period was only 1.4 billion US dollars. In 2017, the value of auto parts exported to the United States accounted for 27% of the total auto parts exports, while the proportions of exports to Japan, Germany and South Korea during the same period were 11%, 5% and 6% respectively.

Although some excellent auto parts companies have emerged in my country, the export of auto parts is still dominated by labor-intensive, medium- and low-tech products. Many of these export products rely on low prices and subsidies to open up foreign markets, and are more sensitive to price changes caused by tariffs and are greatly affected by tariff barriers. The profit reduction caused by the tariff increase will further erode the already limited R&D investment, and thus affect the development of related companies.

Trump personally creates opportunities in China

However, the tariff barriers set up by China and the United States against each other have also brought opportunities for the development of China's automobile industry.

Most of the models imported by China from the United States are high-end cars. However, Chinese independent brands are working hard to improve their brand image and impact the mid-to-high-end market. The tariff barrier will provide a relatively relaxed market environment for independent brands to explore the market.

German and Japanese cars have suffered heavy losses in this round of trade war, but they will not sit idly by. China is the world's largest auto market, and China's auto consumption is upgrading, and the demand for high-end cars is growing rapidly. German and Japanese cars will not underestimate this huge and potential market.

German and Japanese car brands, whose exports are hindered by tariffs, will tend to introduce more models into joint ventures in China and circumvent tariff barriers by promoting localized production.

In this way, the Chinese side of the joint venture will not only have greater profit margins, but also have a greater voice. The introduction of a large number of high-end models will also help the joint venture accumulate experience in the field of high-end car production.

Under Trump's tariff stick, US auto exports to China are bound to be frustrated. Moving production bases to China is a good way to circumvent tariffs, which will cause a large number of talents in the auto manufacturing industry to flow into the market.

At present, GAC, Great Wall, Changan, and BAIC have all established R&D centers in the U.S. Geely, Chery, Great Wall, and GAC also have plans to enter the U.S. market, which has invisibly accelerated the pace of Chinese automakers entering the North American market.

On June 22, the EU's retaliatory tariffs against the United States came into effect.

Trump responded by saying that if the tariffs were not lifted, the United States would impose a 20% tariff on EU cars. Shares of Volkswagen, Daimler and BMW fell after the news was announced.

German cars account for 90% of the high-end car market in the United States. Some analysts pointed out that if the United States imposes a 25% tariff, Germany's losses could reach 4.5 billion euros.

Trump's unilateralism has brought China and Europe closer together. Due to their common pursuit of multilateralism and free trade, China and Europe have developed broader common interests.

China's previous reduction in tariffs on cars and auto parts is undoubtedly a major boon for German automakers. On the day China announced the reduction in tariffs, BMW's stock price rose by 2.6% and Daimler's stock price rose by 1.5%. In 2017, one-third of the cars imported into China were made in Germany.

Compared with the situation in which the parts supply of Japanese and Korean automakers is almost closed and more than 90% of suppliers are from local companies, the Germans are more open in the automotive industry chain, and Chinese companies have more opportunities to participate, thereby promoting the upgrading of China's automotive industry.

It is precisely because of the complementary interests of both sides that China and Germany are increasingly cooperating in the automotive industry. Last year, JAC signed cooperation agreements with Volkswagen, and BAIC signed cooperation agreements with Daimler. Earlier this year, Geely acquired a stake in Daimler.

Currently, China and Germany have carried out extensive cooperation in emerging industries such as artificial intelligence, new energy vehicles, vehicle networking, and autonomous driving, which will be conducive to the common development of the Chinese and German automotive industries.

The tariff barriers between China and the United States have cast a shadow on the development of China's auto industry. But in times of crisis, there will be changes. If we can seize the opportunities amid the challenges, China's auto industry will develop further.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.