China Lowers Trade Tariffs On Foreign Vehicles And Auto Parts

Donald Trump must be ecstatic.

The United States and China have been slowly creeping towards a trade war, which has effected the cost and availability of automobiles. Not only has China imposed a 25% tariff on foreign cars, it has also held several cars at port. The 25% tariff has effected GM, which produces the CT6 hybrid in China. The high tariffs have also greatly impacted European automakers, although the issue is about to improve. According to Reuter's Adam Jourdan, China will cut its tariffs to allow for greater access to its enormous automotive market.

Starting on July 1, 2018, the tariff will be cut from 25% to 15% for most vehicles. The Chinese Ministry of Finance said in a statement that the move is to spur development in the local auto sector. Initially, the move will mainly help premium brands such as Audi, BMW, Mercedes-Benz, and Tesla. BMW said this is a "strong signal that China will continue to open up," and Audi said it was looking forward to "further liberalization and opening" of the Chinese market. A Nissan executive also added that the "Benefits are huge for our business, especially Infiniti." The German cars will be the biggest beneficiaries, due to the sheer number of cars they sell.

The reduced tariffs will help foreign automakers compete with local Chinese automakers on price. Toyota said it would reduce prices on cars that benefited from lower tariffs in order to be more competitive. China will also reduce the tariff on auto parts from 10% down to 6%. Donald Trump has been opposed to trade tariffs with China, so this news should make him very happy. US trade talks with China will continue, with working plans to eliminate China's long-standing rules on foreign ownership of businesses.

BMW Forced To Lower Profit Outlook Due To Trade Tensions And Price Wars

We wouldn't be surprised if other automakers are hurt as well.

2018 was expected to be a tough year for BMW, and this prediction has turned out to be true according to the company's latest financial projections. BMW says it will not reach its expected pretax profit and has lowered its profit margin projections. This decision comes in light of intense price wars and more strict emissions regulations. We've already seen trade tensions heat up between the US and China as well as the repercussions from the new WLTP emissions regulations with several cars being discontinued, including the Volkswagen Golf GTI in Europe.

BMW was even forced to end production of the current F80 M3 due to the new WLTP regulations. These new rules have "led to significant supply distortions in several European markets and an unexpected intense competition. Thanks to its flexible production and sales strategy, the BMW Group is responding to this increased competition and is reducing its volume planning to focus on earnings quality" BMW said in a statement.

The company will still make a profit in 2018, but it will be lower than expected. Instead of earning an 8-10% profit, BMW is now expected to have a profit of 7%, which is the same as in 2017 and inline with the rest of the automotive industry.

In addition to the new emissions regulations, BMW also has its hands full dealing with trade tensions. "The continuing international trade conflicts are aggravating the market situation and feeding uncertainty. These circumstances are distorting demand more than anticipated and leading to pricing pressure in several automotive markets" BMW said.

BMW currently builds many of its cars in the US and Germany but will build the upcoming iX3 electric SUV in China. The ongoing trade tensions will be something to monitor and we wouldn't be surprised if other automakers faced similar challenges.

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