Friday, July 13, 2018

China, American Automobile Sales and Trade Wars

On the People's Daily Facebook page (the official news outlet of the Chinese Communist Party), this posting appeared:


Please note that, on a year-over-year basis, June sales of Ford dropped by 26 percent with June sales dropping by 38 percent, General Motors June sales dropped by 8 percent and overall U.S. car sales dropped by 22.9 percentage on a year-over-year basis.  In contrast, sales of both Japanese and German cars increased over the same year-over-year period.

Just in case you were curious, here is a graphic showing automobile sales in China from May 2017 to May 2018 (in thousands):


Here is a graphic showing total vehicle sales in China since 2008:


To help you put that number into context, here is a graphic showing total vehicle sales in the United States since 2008:


While China's auto sales are far lower than that of the United States, over the long-term, the growth in China's middle class will be a major consumer of automobiles.

So, who is there to step in where Americans step out?  Apparently, BMW is expected to be the first foreign car maker in China to take a majority share in a joint venture with Brilliance Auto Group.  China currently requires that foreign automakers partner with local companies with their ownership stake capped at 50 percent.  According to BMW, the company will take a stake of a least 75 percent in the BMW Brilliance Auto venture which produced and sold 380,000 BMWs in China during 2017.

Given that China's trade surplus with the United States has jumped 14 percent on a year-over-year basis for the first six months of 2018, hitting $217.7 billion, the American trade war with China is unlikely to end anytime soon, no matter how painful it may become to American consumers and Corporate America.

So, are trade wars still easy to win?  Apparently, not necessarily.  This is a fine example of yet another unintended consequence.