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China’s carmakers have a strong domestic front in this war



Donald Trump is trying to confront the most globalized industry, and China. But the largest automotive market in the world will not move.

Beijing reduced tariffs on cars on July 1, just before Friday's imposition of US tariffs on $ 34 billion of Chinese products. China's automobile manufacturers, like their consumers, are the least vulnerable to outside forces compared to their counterparts elsewhere. The tariffs with which Trump intimidates the auto industry, on the other hand, will eliminate a bottom line, will make a hole in the pocket of every American buyer and will trigger job losses.

Chinese imports of cars are increasing. .

Chinese imports of automobiles and spare parts have increased at a slower pace as domestic production increases

Source: Goldman Sachs


… but So Are Exports

Chinese exports of all cars and their parts have kept pace with imports

Source: Goldman Sachs


Part of the explanation for this contrast is that China's automakers are much less globalized than foreign brands that rushed into their market . In 2017, the nation exported almost $ 70 billion pieces and $ 14 billion automobiles. Imports were over $ 50 billion vehicles and about $ 40 billion pieces. In the months leading up to the current chaos, the Chinese two-way car trade with the rest of the world increased. The United States imported more automobile components from China than vehicles, but exported more cars to China. Some parts manufacturers, apparently vulnerable with an exposure to income of almost 50 percent in the United States, already have facilities in the United States and other countries.

Exposure therapy

Chinese manufacturers have limited income outside of China

Source: Goldman Sachs [19659014] The strength of China's domestic market of more than 20 million units per year has been supported by a Approximate offer balance. While sales have slowed at an unhealthy annualized rate of around 5 percent, and inventory tends to accrue, production is also starting to cool. In the last five years, monthly production and inventory have been negatively correlated. That helped global automakers reap the benefits of profit margins in China, despite operational limitations.

Equilibrium Law

China's passenger car market has so far struck a balance between demand and supply

Source: CEIC


That stability now seems like it could act as a buffer if [19659018] increase pressures on prices. When China cut automotive tariffs, many manufacturers, domestic and foreign, announced reductions in suggested retail prices from 6 percent to 7 percent. That was despite the fact that there were practically no changes in the prices of service stations. (In fact, the prices of some premium brands have fallen faster than those of the national models.)

Undoubtedly, the severe price pressures have affected China in the past. Fears about the supply and deceleration of sales in 2014 and 2015 put car manufacturers on the edge, with several advertiser discounts.

China's industrial policy for automobiles strengthened the industry against domestic tariffs and potentially higher US tariffs. Since China said it would relax the limits on foreign ownership, it also limited license approvals for cars that burn fossil fuels, and blocked companies from buying non-operating assets. That means that new entrants do not have it as easy as before, and it gives foreign companies an incentive to operate in partnership with local automakers. Meanwhile, Beijing attracts investments in the automobile sector.

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