China Raises Its 25% Tariff On American-Made Cars

Includes: F, GM
by: Howard Richman

President Hu of China said this week that China is persuing a balanced trade policy. If you believe that one, I've got a bridge in Brooklyn that I want to sell you.

The graph above shows the US trade deficit with China in goods as reported by the Commerce Department on Friday. At $291.8 billion for the twelve months ending in October, it was the highest trade deficit for a 12-month period ever recorded with China.

Meanwhile, the Chinese government is upset that despite its already high 25% tariff upon American vehicles, a few American cars are still being purchased by Chinese consumers, so they just raised it. The Guardian reports:

General Motors (NYSE:GM) faces the greatest impact, almost 22% extra on some sports utility vehicles (SUVs) and other cars with engine capacities above 2.5 litres. Chrysler faces a 15% penalty, while a 2% levy will be imposed on BMW, whose US plants make many of the cars it exports to China.

Existing taxes and duties already push up the cost of US imports by 25%, and the new levies make it even more expensive for Chinese consumers to buy American....

Meanwhile, American car companies, knowing that the Chinese government won't let them sell American-made vehicles in China are producing most of their vehicles for the Chinese market in China. As a condition for doing so, the Chinese government requires that they "share" their proprietary technologies with their Chinese competitors.

On September 16, the Wall Street Journal reported ("Road Gets Bumpy for GM in China") that the Chinese government was pressuring GM to give away its proprietary electric car technology. At that point GM was refusing. Here's a selection:

GM would like to bring its Volt electric car into China. But Chief Executive Dan Akerson said he refuses to share electric-car technology in exchange for hefty consumer rebates from the Chinese government that would juice sales of the vehicle.

Just one week later, on September 22, the NY Times reported ("GM to develop electric cars with Chinese automaker") that GM had caved to the Chinese government demand:

HONG KONG: General Motors said Tuesday that it would develop electric cars in China through a joint venture with a Chinese automaker [SAIC], and would transfer battery and other electric car technology to the venture.

Ford (NYSE:F) may also cave in to the Chinese government demand according to the press release issued by Virginia Senator Jim Webb when he introduced legislation to stop the transfer abroad of technologies developed with U.S. taxpayer dollars. He stated:

Ford Motor Company is looking to share certain proprietary technologies for electric vehicles in exchange for selling cars in China. The electric vehicle sector has enjoyed significant federal R&D funding, loan guarantees, and public-private partnerships funded by U.S. taxpayers. In 2009, Ford Motor Co. received a $5.9 billion loan guarantee from the Department of Energy to advance its vehicle technology manufacturing program. (Source: The New York Times)

If America had a competent president, he would require balanced trade, as permitted by WTO rules. Then American car companies would be able to produce their cars in the United States, where they could protect their proprietary technologies, and still have access to Chinese markets.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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