The “will they, won’t they” chatter over China’s car tariffs misses where the real action is for automakers.

Confusion has abounded over the deal struck between U.S. President Donald Trump and his Chinese counterpart Xi Jinping. Trump tweeted that China was reducing and removing its 40 percent tariffs on U.S. car imports – two very different things. Car stocks rallied on the news Monday, only to give up gains the next day after Larry Kudlow, Trump’s top economic adviser, backtracked on the president’s assertion. Treasury Secretary Steven Mnuchin said China has agreed to eliminate tariffs, without giving specifics.

To recap: China lowered import tariffs to 15 percent on autos and components, from 25 percent for passenger cars and 20 percent on trucks, starting July 1. It then raised the duty to 40 percent for American autos in retaliation against Trump’s trade actions. The U.S. has a 27.5 percent tariff on Chinese car imports, and 25 percent on trucks.

Whether China reduces or removes tariffs is largely immaterial because the vast majority of vehicles in the world’s largest auto market are made there. China imports about 1 million cars a year – less than 5 percent of a market that totals an annual 27 million vehicles.

Ford Motor Co. brought just over 30,000 U.S.-made cars into China last year. BMW AG has been reducing imports and recently doubled down on making more vehicles locally. Daimler AG is also considering raising its stake in its Chinese joint venture, Bloomberg News reported Tuesday. Granted, some foreign-made models such as the Benz GLE and those sold by Tesla Inc. would get a bump if tariffs were cut. But the opportunity for overseas automakers lies mostly in manufacturing in China.

What matters more for the industry are the U.S. import tariffs of 25 percent on steel and 10 percent on aluminum that went into effect in March. Given Trump’s political commitment to revive the U.S. steel industry, these are probably here to stay. Temporary exemptions for Mexico and Canada ran their course in May. 


The broad goal was to push up prices of the metals by capping imports. Trump’s executive order set an 80 percent capacity utilization target for U.S. aluminum and steel, and if one country gets a waiver from the tariffs it would be at the expense of others, as Nomura Holdings Inc. analysts note. Prices have risen relative to those in China and Europe, driving up earnings at U.S. steel producers. Some have raised wages while others have announced new greenfield mills. 

But all this has come at a major cost to the auto industry.  How much steel or aluminum goes into a car depends on the type of car and its construction: Sedans are lighter, with the chassis and bodywork more or less one piece, whereas SUVs and pickups – increasingly popular in the U.S. – are frame-based and heavier. That means steel content could be as much as 70 percent of an average car’s weight. Total raw material costs have risen from around $800 per average unit to over $1,000. 

For the likes of General Motors Co. and Ford, this will be painful. GM, which produced more than 2 million vehicles last year, could see operating profit reduced by $500 million while the impact on Ford could be close to $510 million, according to an analysis by Nomura. American carmakers are expected to take the biggest hit, with Japanese and South Korean peers less affected.

These tariff-related costs will only rise. In the plateauing U.S. car market, more than 70 percent of vehicles sold are now SUVs and pickups. Given rising cost constraints, carmakers will try to push people back to sedans or find themselves under pressure to take shortcuts (read: faulty airbag pumps, wiring issues and recalls). 

Trump’s tariffs will hurt most at home. The likes of GM have already had to announce restructurings and job cuts. Ford may have to make even larger reductions, analysts have said. For all the jobs that may be created for steel workers, more will be lost by autoworkers.  


Anyone hoping lower tariffs in China will save American automakers should think again.

To contact the author of this story: Anjani Trivedi at atrivedi39@bloomberg.net

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

©2018 Bloomberg L.P.