Auto Makers Weigh In on China’s Tariff Retaliation Threat

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Global automotive executives spent substantial time in 2017 urging the Trump administration to seek reciprocity on trade policies affecting the world’s biggest automobile market. Industry leaders could get the exact opposite.

China’s State Council announced Wednesday it will levy new penalties on a range of products coming from the U.S., including sport-utility vehicles built in factories in states from South Carolina to Alabama to Illinois. Long facing a 25% tariff on vehicle imports built by American workers, the threat of an additional 25% duty would likely make vehicles built in the U.S. far more expensive than they already are.

A range of auto makers weighed in on China’s threat of retaliation against the Trump administration. In a statement,

General Motors
Co.

GM 2.95%

encouraged officials to “continue to engage in constructive dialogue and pursue sustainable trade policies.”

Ford Motor
Co.

echoed that sentiment in a separate statement.

The auto industry has been in the spotlight amid President

Donald Trump’s

push for changes to various U.S. trade agreements and plan to slap a 25% tariff on certain steel and aluminum imports. Car companies, which have extensive supply chains and rely heavily on steel and aluminum to build their products, will be affected by changes to the North American Free Trade Agreement or other trade pacts.

Industry leaders have met with Mr. Trump several times since he came to office, expressing a variety of concerns ranging from emissions regulations to corporate tax rates. Auto makers have been given relief on certain issues, including the Environmental Protection Agency’s move this week to commit to rolling back fuel-economy standards. Trade remains a point of serious uncertainty.

To date, relatively few vehicles move between China and the U.S. American buyers have been reluctant to embrace Chinese-built automobiles, and global auto companies have steered around trade barriers by establishing joint ventures with local companies.

Sales of foreign-made cars accounted for just 3% of China’s 28-million vehicle market in 2017, which is nearly unchanged from 15 years ago, according to

Michael Dunne,

founder of consultancy Dunne Automotive Ltd. Even though brands such as Buick, Ford or Jeep are known to Chinese buyers, most of the products sold by Detroit companies are produced in local factories and a portion of the profit goes to a domestic auto maker.

“China’s stance has never wavered: If you want to sell cars in the People’s Republic, you have to build them in China,” Mr. Dunne said.

GM, for instance, has a decades-old partnership with

SAIC Motor
Corp.

, China’s biggest auto maker by sales. GM has begun shipping SUVs and Cadillacs built in China, but in relatively small volumes.

Ford, which has struggled to gain momentum with joint ventures in China, sends higher-priced and iconic vehicles from North American plants. The Michigan-built Mustang, Chicago-built Explorer SUVs and Lincolns built within Nafta are among vehicles sold in the Dearborn, Mich., based car company’s Chinese dealerships.

Fiat Chrysler

declined to comment on the most recent Chinese actions.

Auto makers have argued that China’s joint-venture policy is restrictive and limits their flexibility to ship vehicles in and out of the country, crimping their ability to scale production.

Non-Detroit auto makers that use American factories as a single source of certain vehicles do have more exposure to pricing issues in the Chinese market.

BMW
AG

, which has been building cars in the south for decades, now uses its Spartanburg, S.C., factory as the primary source of certain SUVs, and ships tens of thousands of them to China annually.

Tesla
Inc.

also sends disproportionately more vehicles to China than its Detroit rivals.

Evercore ISI analysts said if China imposed the threatened tariffs on cars from the U.S. it would effectively be a tax on BMW and Mercedes, not U.S. car makers. The two German auto makers likely will ship more than 100,000 cars to China from the U.S. this year.

“A 25% additional US auto tariff would therefore represent a $1.73 billion negative tariff impact directed at Southern Germany by China in a US/Chinese trade war that Germany neither has, nor wants, any part in,” Evercore ISI said in a report. U.S. car companies would see only a $671 million hit, the report said, including $507 million for Tesla Inc.

Volvo Car Corp., owned by China’s Zhejiang Geely Holding Group Co., plans to start producing cars and SUVs in South Carolina this year at a new $1 billion factory, and has earmarked at least some of the output for export to China.

Volvo said it was “monitoring the tariff situation,” but said it was too early to judge the impact. “As a global manufacturer, Volvo is in favor of free trade and open markets,” the company said in a statement Wednesday.

Write to Chester Dawson at chester.dawson@wsj.com and Robert Wall at robert.wall@wsj.com



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