General Motors builds Buicks in Shanghai

China retaliates, taxing US-made car imports

Trade friction may be the political rhetoric of choice, but traders worldwide know China’s retaliation is also a major shot over the U.S. economic bow; and, this time, the US auto industry is affected.
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First I heard the news while watching CNBC’s The Kudlow Report, then I read it on-line via Financial Times. Yet, this kind of trade war news from China should not be a surprise to anyone, especially those in the auto industry.

For the record, this TorqueNews reporter wrote about Chinese intentions many months ago. Read: China sends clear message it will protect its own car manufacturers

FT, however, was careful in its report to use the words “trade friction,” though, when it stated China will impose retaliatory duties on US car imports. Fact is, this is getting beyond trade friction between the world’s two largest economies. It just may be the start of a much larger and escalating trade war.

How did this all start? FT reported a statement, which China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”.

What dumping, you ask? Simply look at the targets. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants.

In addition to the two German premium brands, the ministry is also targeting models manufactured by General Motors Company (NYSE; GM), Ford Motor company (NYSE: F), Chrysler and the US unit of Honda Motor Company (ADR: HMC).

Also according to the FT report, the individual duties will range from 2 per cent to 21.5 per cent and be imposed for two years on imported cars and SUVs with engines larger than 2.5 liters.

Root cause of the squabble stems back to a series of legal actions, in which each country accused the other of supporting domestic industry via illicit state subsidies. Then came the challenge where each used emergency blocks on imports.

Looking at Washington's part in all this, the US was taking a case against China to the World Trade Organization (WTO), a move that obviously miffed the Chinese. The US argues that Beijing’s use of anti-dumping measures against US poultry was illegal under global trade rules.

For the record, this is not the first challenge, as Washington has a similar WTO case pending against China for blocking steel imports from the US. “We are very disappointed in this action by China,” said Andrea Mead, a spokesperson for the US trade representative’s office.

After this reporter checked the historical records, it was clear this latest move is not new for China, because it actually started the process of imposing anti-dumping duties on American poultry and cars as far back as 2009. This was in retaliation for the US using a special measure to block imports of tires from China.

Beijing quickly challenged the blocking action by the US at the WTO, but lost the case after a judicial panel of the WTO ruled that Washington had acted correctly within the law. Obviously, China did not like the verdict.

While it may appear on the surface to be in the best interest of the US automakers and the foreign automakers with plants in the US to lay low for a while, at some point they will have to address the issue openly or in court. Right now, they have learned to deal with the Chinese mentality showing restraint.

GM seems to be in the best shape as it does not import many US made parts or vehicles. In fact, GM has mostly joint ventures with Chinese companies; but that may one day be challenged, too.

As a former design engineer and author of "Perfecting Corporate Character" who has had to deal directly with many companies from various countries, I have often stated that one day the Chinese may kick out the likes of GM, Ford and anything else associated with America; and Beijing will thank them for their help in building the Chinese auto empire as they usher the US companies out the door.

[Ref FT News Source: http://www.ft.com/cms/s/0/31a43596-266e-11e1-9ed3-00144feabdc0.html#ixzz1gZ1DlgSp (This link may require registration)]

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About the Reporter: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks, futures and writes articles, books and ebooks like, "Perfecting Corporate Character," "Awaken Your Speculator Mind", and "Millennial World Order" via authorfrank.com. He may be contacted here by email: [email protected] and followed in Twitter under @Authorfranks
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