Trump's trade war casts shadow over Chinese automotive market

U.S. President Trump's trade war on China that he initiated three months ago is exerting pressure in the auto market in China. The trade war will continue to weigh down on vehicle demand in China unless the bilateral trade disputes with China is resolved at the Group of 20 Summit next month in Argentina.

The total new vehicle sales numbers for September haven’t been released, but most of the automakers posted sharp declines in sales last month indicating the downturn in the Chinese car market.

Only a handful of carmakers like Toyota Motor Corp. and Greely Automobile Holdings managed to maintain growth in September. General Motors and Volkswagen Group, the two largest carmakers in China posted significant decline in sales. GM told Bloomberg that its local deliveries fell 15 per cent in the third quarter.

VW Group said that sales at VW brand, the largest car brand in China, dropped 11 per cent last month. The German automaker said that “the marked general uncertainty” faced by local consumers amid the ongoing trade disputes between China and the U.S. has affected their sales.

This has resulted in calculated and reluctant investment and spending in consumers throughout the market.

The U.S. placed 10 per cent tariffs on US$200 billion worth of Chinese goods on Sept. 24, after slapping 25 per cent tariffs on US$50 billion worth of Chinese imports on July 6.

The tariffs on such huge volume of Chinese import after the 25% and 10% taxes on import of steel and aluminium came as another blow on the already weakening Chinese economy including the auto industry. China’s GDP growth slowed to 6.7 per cent in the second quarter from 6.8 per cent in Q1.

The new-car sales growth also dipped to 2.3 per cent in June from 5.1 per cent in the first five months of 2018 also due to government crackdown on online lending platforms. Sales fell further in the next two months, decreasing 5.3 per cent in July and 4.6 per cent in August. 

Trump also threatened to expand the tariffs to all U.S. imports from China in 2019 if Beijing does not agree to resolve the bilateral trade disputes on terms set by Trump. Chinese government has also retaliated with counter tariffs on US$60 billion of U.S. imports.

A trade war with the U.S. is bound to clip China’s economic growth as the U.S. has been the largest export market for Chinese products. JPMorgan also predicted 1 per cent drop in China’s GDP growth on Trump’s tariffs, hitting manufacturing’s profit margins and consumption growth in the country. The country’s car market has already been feeling the heat and the situation may worsen if the disputes are not resolved next month.