An Example of How Tariffs on China are Working

March 7, 2019

https://www.reuters.com/article/us-autoshow-geneva-bmw-trade/bmws-china-electric-car-export-plans-on-hold-amid-tariff-uncertainty-idUSKCN1QO215

The above-linked Reuters article is just one example of how the tariffs on China, and the potential for those tariffs to be raised further, is already paying dividends for the American economy.  Reuters reports that BMW has put on hold its plans to export EVs (electric vehicles) to the U.S. from China.

BMW has factories in Europe, China and the United States and plans to establish China, the world’s largest market for electric cars, as an export hub for such vehicles, given its lower labor costs and support for zero-emission cars.

But Washington and Beijing are locked in a trade dispute, with U.S. President Donald Trump threatening to increase tariffs to 25 percent from 10 percent on $200 billion of Chinese goods if the two sides can’t reach a deal.

The uncertainty is making it hard for BMW to take a decision about exports, chief executive Harald Krueger said.

Free trade globalists no doubt would cite this as an example of how the American consumer comes out the loser.  That’s nonsense.  American consumers already have two excellent choices of EVs from Tesla and Chevrolet (the Bolt), and more are on the way.  Both the Tesla and the Bolt are priced about the same, at around $35,000.  Both are struggling to be profitable, especially as government subsidies are phased out.  They need every sale in the U.S. in order to survive.  Truth be told, they actually need to sell a lot more than they’re selling now to be profitable and survive.

What would happen if a BMW EV from China were thrown into the mix?  First of all, BMW would price their EV the same as the Tesla and the Bolt in spite of it being cheaper to build in China.  Like all companies, BMW is in business to make a profit, and they’ll want as much profit as they can get.  If priced the same as the other two cars, BMW will quickly take one third of the EV market from Tesla and Chevy.  In that event, it’s likely that the Chevy Bolt would go out of production while Tesla would be bankrupted.  BMW would then have the market to itself.  Without competition, American consumers would be the losers, and approximately 50,000 Americans would be put out of work at Tesla and Chevrolet.

This is just one small example.  If Trump follows through with raising the tariffs on Chinese imports, and especially if he follows through with plans to put 25% tariffs on all auto imports, domestic auto production will explode along with employment and wages in the auto and parts industries.  American consumers of everything will be the winners when they go shopping with more money in their pockets.