Did Trump And China Make A Deal On Car Tariffs?

Trump wrote a late-night tweet. China remains silent.

By now everyone is aware of the ongoing trade war between the US and China. President Trump made the first strike months ago when he imposed tariffs on imported Chinese goods. China responded in kind, and its response hurt. It tacked on tariffs for US-made cars imported to China and American automakers were not happy, to say the least. However, it appears a deal of some sort has been made.

Trump wrote on Twitter that “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%.”

Little else has since been said by the president. China hasn’t said a thing. But already shares of German automakers like BMW and Daimler have rallied following Trump’s comment. Tesla will also be very happy about this deal because it desperately needs China’s business. Although it is about to begin construction of a new plant in China, Tesla will still need to import vehicles for the foreseeable future. Just last week, China said that tariffs on US-built cars would be 15 percent if not for the ongoing trade dispute. Instead, it called for negotiations with the goal of ending the trade war.

Trump and Chinese president Xi Jinping recently met face to face at the G20 summit in Argentina and it appears that meeting was fruitful. If there’s no deal in place, then there’ll be a 15 percent to 25 percent increase of some $200 billion worth of Chinese-made products at the beginning of next year. That’s less than one month from now. Fortunately, it sure sounds like something positive is happening.

Trump also tweeted the following: “My meeting in Argentina with President Xi of China was an extraordinary one. Relations with China have taken a BIG leap forward! Very good things will happen. We are dealing from great strength, but China likewise has much to gain if and when a deal is completed. Level the field!” We’ll update this space if and when an official announcement is made.

Tariffs hit toolmakers in supply chain

A profit pinch point is developing for automakers and suppliers working on new vehicle platforms: the cost of the tools to build them.

Toolmakers are adding tariff costs to their prices, says Laurie Harbour, a consultant who works closely with the North American supplier and tool-and-die industries.

Harbour warns that a wave of higher-than-expected bills from tool shops will soon hit the auto industry. Toolmakers are dealing with higher prices for steel as a result of a new 25 percent U.S. import tariff on the metal, as well as tariffs on specific Chinese-made automotive tooling.

Imported automotive injection molds have been hit with a tariff, and that is spinning uncertainty through the tooling industry, said Harbour, CEO of Harbour Results Inc. in suburban Detroit.

A major shift in automotive tool manufacturing has occurred over the past two decades with China emerging as a key source for North American manufacturers.

Further complicating the outlook is how the United States and Canada will resolve the North American Free Trade Agreement. Some 80 percent of the auto industry's injection molds are traditionally produced in Canada — largely in Windsor. In some cases, Canadian tooling companies also now rely on Tier 2 content from China.

"Every tool out of Windsor will face an added tax," Harbour said. "It will change the equation on every part and every vehicle that relies on that tool.

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"Adding 25 percent to the price of an item can have a huge impact on its profit margin," Harbour said. "It's not clear who's going to absorb the added cost. If I'm a toolmaker, it might be all of the margin I had on the job."

Vehicle projects require large numbers of new tools. A single front fascia package might require the creation of 50 tools. A vehicle redesign could involve $200 million worth of tool orders.

Harbour said tool shops and suppliers are scrambling to understand how they will be affected by tariffs on molds, steel and aluminum. She said some of her clients have been asked by customers not to source the tools they now need for future vehicle programs from China. Some suppliers have even been asked to claw back tool orders they made with Chinese vendors, she said.

The new border scrutiny is requiring Canadian tool suppliers to provide certificates of origin to account for the content of their products. Harbour is advising clients to assign dedicated managers to track trade issues.

"On the positive side, this could be great news for U.S. tool producers," Harbour said. "We're already seeing some tool work leave China and come back to North America. I think you could see many customers deciding that it's just too risky to rely on imported tools, and just opt to make what they need here.

"But the trouble right now is the uncertainty," she said. "These programs move on a tight schedule. There's not much time for unknown factors."

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EU offers to cut tariffs on U.S. vehicles

European automotive stocks jumped, with BMW AG touching an 11-week high, after the European Union's top trade official said the bloc is willing to include cars among U.S. industrial goods that could be imported duty free.

“We are willing to bring down even our car tariffs to zero, all tariffs to zero, if the U.S. does the same,” Trade Commissioner Cecilia Malmstrom told European Parliament lawmakers Thursday at a committee meeting in Brussels. Autos were previously excluded from the discussions that focused on manufactured products bought and sold between the two markets. Removing tariffs “would be good for us economically and good for them -- mutually beneficial.”

Even though Malmstrom's comments go beyond a joint EU-U.S. statement on July 25 that said the two sides would work toward eliminating tariffs on “non-auto industrial goods,” the bloc already had expressed a willingness to cut levies on cars and car parts among all major automobile-exporting countries, according to an official.

Vehicle makers and suppliers are the third-worst performing sector this year on the wider Stoxx Europe 600 index of the region's most valuable companies. The index jumped 1.1 percent on Thursday after Malmstrom's comments. Automotive manufacturers have been plagued by global trade-war concerns as well as by tightening EU emissions rules that are adding to the cost of developing and testing vehicles. BMW rose as much as 1.8 percent to 86.75 euros, the highest since June 15 while Fiat Chrysler Automobiles NV was at a one-month high in Milan.

The EU will eventually bring up car tariffs in talks with the U.S., a person familiar with the matter said. The bloc is expected to seek a limited free-trade agreement on industrial goods and for such an agreement to be possible, cars would need to be included, the person said.

The EU's willingness to scrap tariffs would help address U.S. President Donald Trump's criticism of a lopsided levy system that had prompted him to threaten import charges of as much as 25 percent. Such a move, hurting producers like Volkswagen AG's Porsche and Audi nameplates that don't have U.S. production, would raise the sticker price on cars shipped from the EU by about 10,000 euros ($11,700), according to estimates by the European Commission.

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Trump: EU offer to drop auto tariffs is 'not good enough'

President Donald Trump rejected a European Union offer to scrap tariffs on cars, likening the bloc's trade policies to those of China.

“It's not good enough,” Trump said of the offer from Brussels during an Oval Office interview with Bloomberg News. “Their consumer habits are to buy their cars, not to buy our cars.”

Trump's comments come just hours after Trade Commissioner Cecilia Malmstrom told European Parliament lawmakers that the EU would be “willing to bring down even our car tariffs to zero, all tariffs to zero, if the U.S. does the same.” Autos were previously excluded from the discussions that focused on manufactured products bought and sold between the two markets.

Trump compared the EU to China, where the president is engaged in another escalating trade war.

“The European Union is almost as bad as China, just smaller,” Trump said.

Trump has ordered the Commerce Department to investigate whether light-vehicle imports imperil national security, under the same provision he invoked to impose global tariffs on steel and aluminum earlier this year. The president has indicated he could impose tariffs of as much as 25 percent on the foreign-made autos.

The findings of the auto study are due by February, though the president could decide to act before then. This week, Trump threatened Canada with auto tariffs if the country failed to join his trade deal with Mexico to replace NAFTA.

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