Published on July 15th, 2018 | by Steve Hanley0
Trump’s Trade War, Round One: China 1, America 0
July 15th, 2018 by Steve Hanley
Trade wars are easy to win, our own Dear Leader says. He’s right, but maybe not in the way he imagines. CleanTechnica readers of a certain age may remember a time a few decades ago when America imposed import tariffs on Japanese cars in an effort to protect US carmakers. The result? Japanese automakers soon built new factories in the US and began to push the domestic companies toward oblivion. Today, Toyota and Honda continue to crank out sedans built in America while the Big Two And A Half in Detroit have slashed sedan production to focus on the only vehicles they can sell successfully — pickup trucks and large SUVs.
In the weeks since The Trumpenator announced punitive new tariffs against Chinese-made goods and European steel, Tesla, BMW, and Harley Davidson have announced they are moving from the good ol’ US of A to China or at least or setting up new production. Goodbye, American jobs. Well played, Donald. Well played. [Editor’s note: Tesla was set to open a factory in China anyway since there’s a benefit to localized production and China is a huge EV market.]
China has recently relaxed its rules regarding foreign manufacturers. The Donald will, of course, claim full credit for the changes, but the truth is the Chinese government has been slowly moving toward opening its markets to foreign competitors since long before the Biggest Egotist In History took up residence on Pennsylvania Avenue.
Tesla Gigafactory 3
Tesla has been negotiating with officials in China for almost two years about building a manufacturing plant in Shanghai. Last week, those negotiations bore fruit. Tesla will now build what it calls Gigafactory 3 in the Free Trade Zone outside that city. It expects to begin manufacturing the Model 3 there in about 2 years and the Model Y SUV shortly thereafter. The new facility will have a planned capacity of 500,000 cars a year and will be the first car factory in China wholly owned by a foreign corporation.
BMW Renegotiates Its Deal With Brilliance
This past week, BMW, which exports more American made cars to China than any other company, announced it is taking advantage of China’s relaxed trading rules to increase its ownership stake in its joint venture with Brilliance to as much as 75%, according to a report in Nikkei Asian Review. The new agreement comes shortly after Chinese premier Li Keqiang’s recent trip to Germany.
During the premier’s visit, BMW and Brilliance agreed to ramp up production in China to 520,000 vehicles annually from 450,000 today. They also agreed to manufacture the upcoming BMW iX3 electric SUV in China for export to world markets. Might the iX3 have been built in South Carolina, where BMW currently makes the X3 and other SUVs? We can’t know for certain, but the latest round of tariffs can’t make the decision to expand production in the US any easier. The new investment rules in China are not scheduled to go into full effect until 2022, but indications are they may happen sooner, especially if a company says it will build electric cars in country, something the government strongly supports.
Editor’s note: Aside from the issue of tariffs, China’s strong electric vehicle policies are more quickly stimulating the automotive market of the future. Since it is a potentially better market for the electric iX3 than the US market is, BMW probably already chose to manufacture the iX3 there anyway. Yet again, it shows how Chinese leadership on cleantech isn’t just a good move for their air or the climate; it’s a good move for their economy.
Harley-Davidson On The Move
Harley-Davidson, which may be the quintessential face of American manufacturing, announced in a filing with the SEC on June 25 that is is moving some motorcycle production to other countries as a result of Trump’s decision to impose new tariffs on steel and aluminum imported from Europe. The EU had countered with new import duties on US-made motorcycles. Nearly 20% of Harley-Davidson sales so far this year have been to customers on the Old Continent. The company says those tariffs will add about $2,200 to the price of each motorcycle it makes for export.
“Increasing international production to alleviate the EU tariff burden is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe. Europe is a critical market for Harley-Davidson,” the company says in a statement.
It doesn’t take a Ph.D. in economics to know that business seeks the lowest costs possible in order to maximize profits. The entire globalization process is based on that principle, but the concept seems to be beyond Trump’s ability to comprehend. His treasury secretary, Steve Mnuchin, testified before Congress this week he believes Harley’s decision to move production overseas was made before the Trump tariffs were announced. And what basis did he have for that claim, asked Congresswoman Maxine Waters? That’s my “sense” of the situation, Mnuchin testified, then lamely admitting he hasn’t actually spoken to anyone at the company. Harley-Davidson’s official statement seems to differ from Mnuchin’s feeling.
As Jalopnik observes, “Survival in Trump’s America apparently means leaving, even for a company that is as American as they come.” By the time Trump is through wrecking the world economy because of inequities that were operative years ago, America won’t be great, it will be irrelevant. Germany and most of the rest of the world’s industrial countries are now lining up to conclude new trade agreements with China, agreements that will cut the US out of the loop entirely, leaving Trump to spread his toxic spew on Twitter while the rest of the world passes America by.
Even if Trump got his overflowing diapers changed and rescinded his ill considered trade war tomorrow, the die is cast. America is now seen as an unstable place to do business. Industry abhors unpredictability as much as nature abhors a vacuum. Many business leaders will now look elsewhere when they decide where to locate their operations. Trade wars are indeed easy to win, Trump crows. Today, China is showing the US just how easy it can be.