How a Potential Trade War Could Affect American Auto Manufacturers The potential of a trade war between the US and China could have a significant effect on American industries, with tit-for-tat tariff proposals by China too.
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The first lesson to learn in stock trading is that the stock market does not exist in a vacuum. Stocks rise and fall based on various factors that have a bearing on the industries and companies they represent. One such significant factor that could particularly affect industrial stocks is making investors, stock traders and market analysts anxious. A Trade War that Is Hoped Will Never Materialize The tariffs on 1,300 Chinese goods, including industrial, medical, transportation and technology products, that Trump plans to impose have been the major topic of discussion all through the stock market and financial circles. There’s some anxiety around as to how this could impact the industries that have their products made in China and imported to the US market. The consultation period and negotiations between the United States and China were expected to ease the fears of retaliation by China towards American companies functioning there and American products imported to China. But China has gone ahead and proposed its plan of imposing tariffs on 106 American products imported to the country, including automobiles,
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chemicals, beef and soy, among other products. The makings of a full-blown trade war are there. And there were already fears in Detroit regarding the potential impact on General Motors’ ($GM) and Ford’s ($F) vehicles manufactured in China. Two of Detroit’s Big Three in a Dilemma General Motors manufactures the Buick-badged crossover Envision in China, thanks to the low cost of production in China. It is then imported to the United States to be sold in the markets here. The company, though, has said that it is still not time to say exactly how the impact would be on the future production of the Envision. GM manufactures the Envision in partnership with the China-owned automobile company SAIC. It imported close to 30,000 Envision crossovers to the United States and is the largest exporter of vehicles built in China to the US. But the Envision does share its platform and other mechanical parts with the Equinox vehicle badged by Chevrolet, another of GM’s brands. The Equinox is currently manufactured in Mexico and Canada. There is also the similarity with a crossover of another GM brand, the GMC Terrain. So the proposed tariffs are
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not expected to cause as big an impact on General Motors, particularly since there are only 30,000 models involved. One analyst believes that it wouldn’t be too hard for GM to shift the manufacture of Envision to Canada or Mexico where the Equinox and Terrain are manufactured. Ford’s plans could be affected too. The company has plans to transfer production of its Focus to China from Mexico next year. If the tariffs do come into effect, that could force the company to rethink its plans. Right now, Ford is waiting and watching, hoping that the countries resolve their issues. Hope for Successful Negotiations Still Bright Thankfully, the American tariffs and the proposed counter-tariffs by China will not be imposed right away, making it possible for negotiations to cool down the tensions if both the countries can actually settle their differences. This period of consultation could last for two months from the publication of the list of Chinese products on which American tariffs are proposed to be imposed. The list was published on Tuesday, the 3rd of April, 2018.
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Let’s not forget that the United States also exports automobiles to China, boasting a surplus of around $8 billion. In 2016, the US exported $11 billion-worth of vehicles to China as per the office of the US Trade Representative. Escalation of Trade War Expected to Be Nothing but Negative for Economy According to the Fed’s James Bullard, if the trade war escalates the US economy would be significantly impacted negatively. And, the fact that there are talks about tariffs that are more generalized, and not restricted to aluminium and steel, is a key development. This generalization has macro-economic significance, Bullard believes. The hopes of the trade war being averted are still bright though. On Wednesday, the 5th of April, 2018, the dollar rose against the yen. Dollar/yen was back close to 107 from having dropped below 106. The stock recovery currently supports dollar/yen.
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