The Motley Fool

Trump’s Trade War Strengthens the Chinese Automotive Industry

Chinese automakers have suffered greatly since Trump launched his trade war with China, and the conflict seems likely to severely damage the Chinese auto industry. However, the opposite may ultimately be true.

Trump’s tariffs on Chinese automotive imports have significantly increased the price of producing American cars, thus making it more difficult for American car manufacturers to remain globally competitive. But China’s not faring much better, at least for now. Chinese automakers, their suppliers, their dealers, and related businesses that support the automotive industry have suffered since the implementation of Trump’s tariffs. They are dealing with reduced profits, slower growth, and problems expanding their operations.

While negotiators from both sides have sought to ameliorate the negative consequences of Trump’s trade war with China, the Chinese government has taken decisive action to support its domestic automakers, increase investments from foreign companies, and enter into trade treaties that uplift the Chinese automotive industry.

China’s Solutions to Trump’s Tariffs

The Chinese government is giving companies like FAW Car Co. Ltd.(SZ: 000800) funds to stay afloat, and helping those companies to take more market risks while maintaining their current level of operations. Meanwhile, Volkswagen(ETR: VOW3), BMW(ETR: BMW), Ford Motor Company(NYSE: F) and other foreign automotive companies have increased their investments in China, with plans to expand operations and increase production there. These efforts stem from Trump’s tariffs, which hinder foreign firms’ ability to get the parts they need from China and export products into China at competitive prices.

In addition, China has embraced treaty negotiations with the European Union, Japan, South Korea, and Russia. The goal of the treaties is to reduce trade barriers, improve trade relations, negotiate deals for currency swaps, and bolster intellectual property protection. Overall, these deals are designed to decrease the negative consequences of Trump’s trade war, prevent the country from being held hostage by the USA in the future, and create more lucrative trade deals with China’s other trading partners

Elsewhere, Tesla(NASDAQ: TSLA) and BMW are both taking advantage of China’s relaxed foreign investment laws. The new investment laws will help China get favorable trade terms from foreign nations and companies, and boost domestic production of vehicles in China. In addition, the increase in foreign investment and ownership will increase cooperation between Chinese and foreign companies, which benefits China, its industries, and its workers. Lastly, increased production in China will reduce the amount of money Chinese consumers must pay when they purchase vehicles in China.

What we know . . .

Chinese automakers’ growth pains are short-term. China’s solutions to Trump’s tariffs are likely to cement China’s position as the global automotive leader, and could ultimately help the Chinese automotive industry overtake America as the world’s dominant automotive producer.

Keep your eye on Chinese automakers and take steps to profit from their possible recovery and growth.


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Disclosure: Alisa Hopkins doesn't own any of the stocks mentioned. Motley Fool Hong Kong is not licensed by the Hong Kong Securities and Futures Commission to carry out any regulated activities under the Securities and Futures Ordinance.