Boy, we’re really squeezing the juice out of this “China is thinking about slashing the tariff rate on imported cars” story aren’t we?
On Tuesday morning, Bloomberg reported that Beijing is considering a measure to cut tariffs on U.S.-made cars to 15% from 40%. The news comes on the heels of a phone call between Chinese Vice Premier Liu He and Steve Mnuchin. Lighthizer was also on the line. That means the ratio of rational people to irrational people on the call was 2:1, which probably explains why there’s progress on Tuesday.
This would appear to be the first time that actual details have emerged on what China is thinking about doing. Multiple outlets have suggested that the Chinese are moving quickly to buy more soybeans and natural gas from the U.S., but details around the actual implementation there remain a bit sketchy.
The auto tariff story was good for a premarket pop in GM and Ford and also catalyzed a pretty dramatic spike in European autos (top pane below), the worst-performing sector of 2018 on the Stoxx 600 (bottom pane, in blue), which was already rising before the news hit.
This comes as a welcome reprieve for European equities after Monday’s rout, and it’s great news (if it comes to fruition) for the likes of BMW, which has been hit hard by the U.S.-China trade spat.
And that’s the irony here. This will actually benefit BMW and Mercedes more than it will U.S. companies considering that six out of 10 of the top-selling U.S. auto imports in China are actually European models that are manufactured in the U.S. Of course that doesn’t mean U.S. workers won’t benefit because after all, when a European company makes something in the U.S. it means jobs for Americans, but the fact that Trump has threatened to tax imported cars from the same two companies that are set to benefit the most if China slashes tariffs on U.S. car exports speaks to how absurd this whole thing is and also underscores how little Donald Trump understands about all of this.
Shares of BMW jumped sharply when the headline crossed.
This also comes as worries mount about domestic demand in China and auto sales are front and center in that debate. Car sales have fallen for six straight months in China. Unsold inventory is turning the country into a giant parking lot.
In any case, the bottom line is that this appears to validate Trump’s tweets about China’s intention to slash tariffs on cars, but as ever, the Huawei story is casting a pall over any and all positive news on the trade front.