Wednesday wasn’t devoid of trade escalations, just in case you missed the memo.
A day after rallying alongside other auto shares, Ford fell by more than 1% on Wednesday, after China fined the company’s Chinese joint venture $23.6 million ostensibly due to antitrust concerns.
Changan Ford, China contends, has been busy “restricting retailers’ sales prices” in a city (Chongqing) the vast majority of Americans have never heard of and couldn’t pronounce if their lives depended on it.
These price shenanigans have been going on since 2013, China claims.
You might reasonably ask why, if this has in fact been going on for six years, China’s anti-monopoly authority is just now getting around to doing something about it. Of course, you needn’t ask, because the answer is self-evident: This is just the latest warning shot from Beijing that American companies will be targeted in an effort to hit back at Donald Trump.
The fine amounts to something like 4% of JV yearly sales in Chongqing. Ford, apparently not wanting to poke the hornet’s next, accepted the decision without arguing. In a statement, the company said it’ll try a little harder to regulate operations in China and preserve “free, fair market competition”.
This comes less than a week after Beijing announced an investigation of FedEx, a move which itself came less than 24 hours after China unveiled its already infamous “unreliable entities list“.
Shares of Chongqing Changan Automobile plunged on Wednesday, perhaps underscoring the dilemma for China when it comes to targeting American automakers, who will presumably be reluctant to partner with local firms if this is the kind of thing that’s likely to happen any time there’s friction with Washington.
Chongqing Changan Auto had a terrible go of it last year, falling every month but one from February to November (or at least that’s what my data shows).
Shares of Ford fell nearly 10% last month after logging a stellar April.
Analysts continue to fret about the possible hit to the auto industry from Trump’s “brilliant” Mexico tariff idea. Last week, Deutsche Bank delivered a rather dour assessment of the situation, warning that out of the total $86 billion tax implied in the worst-case scenario of 25% tariffs on imports from Mexico, some $23 billion of that “would fall on US autos”. That “could cripple the industry and cause major uncertainty”, the bank said.
According to BofA’s auto equity analyst, some $100 billion of autos and auto parts are imported from Mexico every year. A 5% tariff on that would drive up prices by “$313/vehicle on average and a 25% tariff would boost prices by $1,563/vehicle”, the bank wrote, in a note dated Friday. “The cost burden will be very high and profits will be pressured”, BofA continued, adding that “faced with already weakening demand, it will be hard to pass on the costs to consumers [and] could make for a difficult environment for the auto sector.”
Ultimately, the pot shot at Ford’s JV is just another indication that US firms are in Xi’s crosshairs.
Meanwhile, Bloomberg reported on Wednesday that Boeing “has been negotiating one of the largest orders ever of wide-body jetliners with Chinese airlines even as tensions between Washington and Beijing escalate.” That’s according to people familiar with the talks, who also said “the trade war is a major complication for all involved.”
Of course, if Beijing really wanted to hit America where it hurts, they’d blacklist Apple in retaliation for Huawei. Like China’s other “nuclear options” (e.g., a large devaluation and the liquidation of US Treasurys), going after Apple would, in certain respects, be self-defeating. But don’t rule it out.
In a wide ranging interview with CBS on Tuesday, Tim Cook said he doesn’t expect Apple to be targeted by Beijing. We’ll leave you with a couple of excerpts from the transcript.
O’DONNELL: But it’s been reported, if there’s a 25% tariff on the iPhone XS alone, it could add $160 to what is already, you know, a very expensive device. Would that hurt sales?
COOK: Sure it would. I’m hoping that doesn’t happen. And I don’t anticipate it happening. I know people think the iPhone is made in China. The iPhone is assembled in China. The truth is, the iPhone is made everywhere. It’s made everywhere. And so awould hurt all of those countries, but the one that would be hurt the most is this one.
COOK: I think again, I think we’ve had a company in China for a long time. And so, there is a, I believe, a healthy level of respect for both sides. And so I don’t anticipate that happening. But I’m not promising that it will not, but I don’t anticipate it.