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The Trade Numerologist: Global Auto in Thick of Trade War
05 September 2018John Miller
This column is based on data from Global Trade
Atlas.
The world's brewing trade war could have a significant impact on
automakers, parts manufacturers, logistics firms, and
investors.
The biggest threat: a steep import tariff on the world's top car
market.
President Trump has made a duty on cars and car parts,
potentially 25%, a centerpiece of his renegotiating of trade
treaties with longtime economic partners such as Japan, South Korea
and the European Union.
In the US administration's view, the sector, which produces
around 80 million vehicles a year globally, is leveled unfairly
against the US. And, in fact, the US has lower tariffs on cars than
its counterparts, according to the World Trade Organization.
The new US hardline, aimed at exacting better trade conditions
overall, has frustrated governments, and their carmakers caught in
the middle. A group of 40 countries has protested at the World
Trade Organization. But they have no choice but to pay attention:
In 2018, the US is still, by far, the world's number one car import
market.
Top importers of cars, first 5 months, 2018
· US $71.6 billion (-0.3%)
· Germany $26.1 billion (+10.2%)
· UK $20.8 billion (+11.8%)
· Belgium $20.8 billion (+9.9%)
· China $20.7 billion* (+9.3%)
· France $17.5 billion (+18.5%)
· Italy $16.8 billion (+16.6%)
· Canada $15.5 billion (+16%)
· Spain $10.4 billion (+27.5%)
· Australia $7.2 billion (+9.2%)
*Projected data based on first quarter.
New tariffs, in the US and elsewhere, threaten to upend the
trillion-dollar-plus market. China and the US have already imposed
extra duties on each other's vehicles, which is likely to stimulate
EU exports to Asia. With NAFTA trade becoming more difficult,
that's likely to help the bottom lines of seaborne auto
carriers.
And car talk has become the central part of almost every
important trade discussion.
Last week, the US and Canada broke off talks to renegotiate the
North American Free Trade Agreement. That deal was, in large part,
focused on knotting together the continent's auto sector and supply
chains.
And, indeed, a preliminary deal with Mexico announced last month
focused on cars. According to the agreement, which has not been
ratified, carmakers could import vehicles with no tariffs if
three-quarters of the content is made in North America, up from
62.5% currently. And 45% of parts in the vehicles must be made by
workers making over $16 an hour.
Even without Canada, the US still aims to sign a final pact in
late November. "I intend to enter into a trade agreement with
Mexico-and with Canada if it is willing, in a timely manner," Trump
wrote to congressional leaders in a letter.
If the three countries reach a deal, it will reduce trade with
the EU and Asia, but if it fails and it gets harder to trade cars
within NAFTA, that could help the import of cars from outside
free-trade bloc arriving in American ports. The US imports a large
number of cars on so-called roll-on roll-off, or RoRo ships.
Top exporters of cars to US by sea, first 6 months, 2018
· Japan $19.6 billion (+5.7%)
· Germany $8.2 billion (-14.7%)
· South Korea $6.6 billion (-23%)
· UK $4.5 billion (+0.2%)
· Mexico $3.8 billion (+16.5%)
· Italy $2.1 billion (+3.7%)
· Sweden $1.3 billion (+51.2%)
· Finland $1 billion (+343.2%)
· Slovakia $916.5 million (+0.5%)
· India $598.7 million (was zero in 2017)
Restrictions on trade can have fast impacts. In July, the US set
a 25% tariff on imports of cars and car parts from China, and
already that's drying up imports from that country.
Last week, Ford said it would scrap plans to make its Focus, a
compact car, in China for exporting into the US. The reason, it
said, was the tariffs.
Ford's idea had been to start shipping the new Focus to the US
from China in the second half of 2019. Instead, Ford will no longer
sell the Focus in the US after current inventory is expired.
Another company, General Motors, makes its Buick Envision SUV in
China. The company has said it might stop selling the vehicle in
the US if it's granted an exemption from the tariff.
In any case, the tariff is almost sure to put the brakes on
Chinese car exports to the US, which have been growing.
Nbr of cars exported to US from China, first 7
months
· 2009: 31,187
· 2010: 54,392
· 2011: 32,788
· 2012: 34,293
· 2013: 47,337
· 2014: 53,420
· 2015: 72,486
· 2016: 78,760
· 2017: 123,540
· 2018: 139,033
The European Union is keen to avoid a similar fate. It's offered
to let in US cars for zero tariffs under a new industrial trade
treaty, in exchange for Washington dropping its tariff plans. That
would make sense: It's a European country, Germany, that is still
on top of global auto trade, thanks to companies like Daimler, BMW
and Volkswagen, and it needs the US market.
Top car exporters, first 5 months, 2018
Germany $73.9 billion (+13.8%)
Japan $41 billion (+15.3%)
US $23.7 billion (+6.6%)
Mexico $20.2 billion (+34.1%)
UK $19.2 billion (+11.4%)
Canada $18.1 billion (-10.1%)
Spain $17 billion (+14.8%)
South Korea 15.8 billion (-4.4%)
Belgium $15.5 billion (+15.3%)
The EU is also a massive car market that Asian manufacturers are
likely to target instead of the US. Although Europeans mostly shop
for cars on the continent, they still imported $29.4 billion of
cars from the rest of the world. Imports from the US fell during
the first six months of 2018, while they rose sharply from Japan,
Turkey and South Korea.
Top sources of EU car imports, first 6 months,
2018
· Japan $6.4 billion (+17.8%)
· Turkey $5.6 billion (+7.2%)
· South Korea $4.7 billion (+33.5%)
· Mexico $3.8 billion (+87.8%)
· US $3.6 billion (-4.8%)
· South Africa $1.9 billion (+8.6%)
· Morocco $1.4 billion (+32.1%)
· Serbia $522.3 million (-6.5%)
· Thailand $308.1 million (+8.6%)
· China $306.4 million (+273.5%)
Not surprisingly, most cars coming into the EU are arriving in
Rotterdam, Antwerp and other big ports.
Top ways of car transport into EU, first 6 months,
2018
· Sea $25.3 billion
· Inland waterway $2.7 billion
· Road $1.1 billion
· Air $159.9 million
· Rail $144.3 million
But the big prize is still the US. One big priority for US
policymakers, and their boss, is to stimulate more buying of parts
from shops in Ohio, Michigan and Indiana. The US gets most of its
imported parts from its NAFTA neighbors, and China.
US parts imports, first six months, 2018
· Mexico $12.2 billion (+5.4%)
· China $5.4 billion (+14.4%)
· Canada $4.8 billion (+6.6%)
· Japan (+1.1%)
· Germany (+0.6%)
· South Korea (-5.9%)
· Taiwan (+4.3%)
· India (+24.6%)
· Italy (+21.4%)
· Thailand (+3.2%)
Already, China has acted aggressively to protect its market
share. This summer, it retaliated against the Trump administration
with a 40% tariff on US-build vehicles.
Immediately, EU exports of cars to China spiked: Monthly
shipments rose to $2.6 billion in June of 2018, up from $1.9
billion in June of 2017. Over the first six months of 2018, EU car
exports to China totaled $14.1 billion, up 19.6% from $11.8 billion
during the same time period in 2017.
Posted 05 September 2018 by John Miller, Guest Blogger