Economic historians will cite July 9, 2018 as the date on which the US lost the trade war with China – before the war began. That was when Germany’s top manufacturing companies – Volkswagen, BMW, Daimler, BASF and Siemens – announced tens of billions of dollars of new investments in China as Chinese Premier Li Keqiang posed for a photo op with German Chancellor Merkel in Berlin.
BMW will expand its joint venture with Brilliance Auto to produce 519,000 vehicles a year. It also set up a joint venture to produce an electric version of the Mini together with Great Wall Auto. And it agreed to buy US$4.7 billion worth of batteries from Chinese producer CATL, which just announced a new plant in southern Germany. Volkswagen earlier this year announced that it would invest US$18 billion in China by 2022 and construct six plants to build electric vehicles. BMW will move some of its SUV production out of its South Carolina plant in response to auto tariffs.
Since then the prices of US automakers have tanked, and German auto stocks have rallied. The future of the auto industry lies in electric vehicles, for which China will be the world’s largest market by far. China also has the world’s most advanced battery technology as well as the most robust supply chain for battery production.
China’s response to American tariffs has been to offer German and Japanese industrial companies a privileged position in joint ventures with Chinese manufacturers. China also is reportedly planning to reduce import tariffs for America’s competitors. Toyota and Honda also announced plans to expand Chinese production in July.
The US administration often cites the relative performance of equity prices as a gauge of its success in the present trade confrontation with China. At the sector level, though, equity prices tell a different story.
President Trump apparently believes that tariffs will bring auto production back to the United States, as he suggested on Twitter in early September:
Ford’s North American production manager Mike Levine tweeted in reply, “It would not be profitable to build the Focus Active in the U.S. given an expected annual sales volume of fewer than 50,000 units and its competitive segment.”
The fate of the Ford Focus, though, is the least of the problems of the American auto industry. China has prepared a supply chain for electric vehicles in depth, and it is extremely difficult for automakers who are not entrenched in the Chinese market to compete.
China also holds the keys to the future of self-driving cars. Rather than attempt to design autonomous vehicles to negotiate the poor infrastructure of American cities, China is designing cities around the concept of autonomous vehicles, with roads fenced off from pedestrians and 5th-generation mobile broadband.
China is not only the largest auto market in the world, and likely to grow as a percentage of the world auto market, but it is the center of auto industry innovation.
Wall Street analysts are busy calculating the prospective advantages to European and Japanese exporters. As I wrote in August (Europe, Japan, China and Russia line up against the US), America’s trade war on China portends a global shift in trading relationships away from the US.
Alicia Garcia Herrero, an economist at the French bank Natixis, summarized the potential shift on September 14:
“For the first batch of import tariffs ($50 billion from each side), the key beneficiaries in Europe from substituting Chinese exports into the US would be general purpose machinery. As for China’s market, European car manufacturers, followed by aircraft and aerospace, would be the key winners from potentially replacing the US exporters…For the second batch of import tariffs (on $200 billion from US side and $60 billion from China’s side), Europe’s potential gains in the US are extended to many more sectors, including office, accounting & computing machinery as well as furniture […] European gains in China will also be more widespread, covering sectors such as medical & precision products, basic chemicals and general purpose machinery.”
Ouch! Does shooting yourself in the foot hurt?
"China also has the world’s most advanced battery technology as well as the most robust supply chain for battery production."
Panasonic/Tesla has the world’s most advanced battery technology…
There’s ni doubt the Germans will benefit as they always had in China. Two things wrong with the auto industry in China:
1) It can not possibly have this many cars as projected. There simply has no physical space to park them nor enough space for enough roads to be built. Fast big capacity trains for long distance and light and efficient buses are the best solution for China. Then maybe cars to cover rural areas.
2) Electric car math simply can not add up in battery energy density, efficiency/weight, cost, charging time, electricity generation and distribution. This will be proven more futile than fusion power. The alternatives of hydrogen, LNG/propane will make more sense if oil/gasoline runs out.
I know. That statement killed the credibility of the entire article.
The US forces its own domestic laws on other sovereign countries. This is outrageous. There will be consequences not beneficial to the US. Just as the endless US wars predicated on quick victories and the spread of democracy has now morphed into chaos, the spread of terrorism, and refugees to Europe, allies of the US will eventually turn against the head gangster. The number of countries turning against the US will increase.
These positive changes are being accelerated by US arrogance to the extent of trying to control EU’s sovereignty in buying gas from Russia. EU is not allowed to determine its own energy security.
U are right if u say this 3 years ago. China is now. 65% of the world market belongs to China
By the way, Toyota also offered China the Hybrid technology as it is very complex system. China is making major leaps in technology while our citizens are busy watching Russia gate, false news on Iran threat and N. Korean peace dreams. While Israel is busy diverting American funds and attention to Syria, Yemen and Iran battle, we are looking the real war to China.
Wrong! Tesla just assembles the Li-ion batteries it gets from Asia albeit in a high tech package that allows heat loss! LOL!!!
Trump himself declared that USA lost the trade war with China several years ago. And he is not waging a battle that USA has already lost. What a dotard! Meanwhile, the ignorant and more or less stupid Americans have their eyes, ears and minds focus on Stormy Daniel, Managort and Chen, while the dummy, Oence, writes unsigned articles on New York Times.
"I mean to say we are loosing the real war to China". Mr. Goldman, you are only looking at one puzzle where in fact you have to looked at multiple pieces of puzzle and see why US is loosing its power and prestige. The other date to keep in mine is May 8, 2018. When Trump killed Iran Deal. Not only he lost the respect of its European allies, he empowered China and Russia and pushed Iran (with the pro US population) toward eager Chinese and Russian. He single handedly guranteed Chinese access to Cheap Oil and Gas for the next few decades. I would say this had to be the worse strategic decision and as bad as Iraq war. Again with Israel being behind both decisions and forcing America to take actions against its own interest. Now you can see two pieces of Puzzle (Alienate your important allies like Europe) for the benefit of Israel.
Well I applaud these sanctions and hope to see the US impose even more. there is nothing that is eroding the power and prestige of the US like these sanctions. Go for it Trump. No wonder the Russians and Chinese love you so much. You are the best man they have ever had in the White House. Don`t worry your Basket of Deplorables will go down with the ship shouting USA! USA! USA!
Trump’s strategy is failed by design: in capitalism, tendency is always towards globalization (what Marx called the "world market"). To try to reverse the process is akin to try to put the genie back to the bottle: you’re squandering your energy in selfdestruction.
The USA is now strictly a financial superpower with an exceptional, but very localized manufacturing sector (war industry). If the Americans get what they want, they will transform the world into a dystopic futuristic wasteland.
Ever heard of the place called Dimona?
Can anyone tell me, what’s mossad’s motto ?
Accidentally ? You don’t know that. Shot by IAF or French missile is also a possibility . You seem to swallow MSM’s immediate bullshit blindly. Whenever joos are involved, goyims must always be extra cautious.
More bailouts needed?
Mr. Goldman, nice article! But wise bears know how difficult is to predict the future.
As for China, it should better feed decently its 1.5 billion. That would be a good start.
Russia offers 2.5 million-acres of farmland to China. It is projected that in 2 years harvesting will begin.
James Agapios , Iran is a miserable place with a shoddy economy (some bright engineers to be sure, but they all seem to emigrate). China is an economic power.
Dude, you are behind the evolution, just as your patronized Tesla and Panasonic.
Teddy West
Personal attack is a sign that you ran out of reason. Quite primitive, isn’t it?
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And where’s India in all this?
I’m sorry for all this nagetive projections towards Trump’s policies. As of now they all remain projections. America still remains worlds biggest economy by a long margin. China still remain a developing economy. Many analists have different views, some even suggesting that China is building a house of cards. The reasons for the tariffs on China is so glaring that anyone willing can see. If China change its trade policies, and stop violating WTO regulations, will there be need for tariffs?
The writer never mentioned the effects that the tariff will have on Chinese economy. Time will tell
Ok, try your best helping the economy of CommChi for soon you’ll be forced to speak Mandarin. All of CommChi’s networth are invested on war assets.
James Agapios "I mean to say we are loosing the real war to China" The American Empire is at war with itself and the rest of the world. The real war is the war with the Dark State, that is controlling US, that the Americans hope Trump would wage on. Looks like the Swamp has swamped Trump now.
James Agapios "I mean to say we are loosing the real war to China" The American Empire is at war with itself and the rest of the world. The real war is the war with the Dark State, that is controlling US, that the Americans hope Trump would wage on. Looks like the Swamp has swamped Trump now.
"America still remains worlds biggest economy by a long margin. China still remain a developing economy. " Not true! China’s industrial capacity is greater than the G-7 combined. Have you noticed the stuffs you brought at the store are mostly made in China?
"America still remains worlds biggest economy by a long margin. China still remain a developing economy. " Not true! China’s industrial capacity is greater than the G-7 combined. Have you noticed the stuffs you brought at the store are mostly made in China?