China relaunches 25% tariff on US automobiles, auto parts

The Chinese government has revived a 25% tariff on imports of US automobiles and a 5% tariff on auto parts, set to take effect on December 15, which some market participants worry could imperil future investments as well as steel and base metals demand.

Chinese tariffs on US-made cars and auto parts were placed on hold in April, but the Chinese government reinstated them on Friday August 23.

Beijing’s decision to implement those tariffs reportedly is retaliation for the United States’ 10% tariff on $300 billion of Chinese goods, announced on August 15, which will be rolled out in two batches on September 1 and December 15, according to China’s announcement.

The Chinese tariffs will not only hit US cars and auto parts but also target more than 5,000 other goods with duties of 5-10%. Some of those trade measures will go into effect on September 1 and some on December 15, mirroring the US tariff schedule.

US President Donald Trump responded to the news on Friday via Twitter.

“We don’t need China and, frankly, would be far better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA,” he wrote.

Market responses split

Views among metal market participants were mixed. A steel service center source told Fastmarkets that there might be a negligible impact from the duties because the US does not sell many cars in that country, and US automakers’ cars that are sold in China are mostly produced in plants in China.

“The amount of steel that goes into the cars that we sell in China wouldn’t fill the books of a small service center,” he said.

But some analysts and metal market participants expressed concerns that China’s action might stifle investment by manufacturers amid deepening uncertainty in the markets. That could depress US demand for metals - such as steel, aluminium and copper - where the growth outlook is already lackluster.

Fastmarkets’ aluminium P1020A premium, ddp Midwest US, was 17.5-18 cents per lb on August 23, down by 15.5% from 20.75-21.25 cents per lb on the same date last year.

Fastmarkets’ copper grade 1 cathode premium, ddp Midwest US, was 7-7.75 cents per lb on August 20, off by 1.7% year on year from 7-7.5 cents per lb.

“This is why markets will fall. Those [investment] decisions aren’t made overnight. Corporations and managers love to plan. You can’t plan when things are moved on a dime every week,” one aluminium trader said.

“Part of the survey done every month [for IHS Markit’s purchasing managers’ index] is new orders for steel-, aluminium- and copper-consuming industries. Uniformly, those orders are now contracting. [Companies] are stepping down from longer-term commitments, and it’s reflected in the orders for investment and materials goods that go into those types of investments,” John Mothersole, director of research at London-headquartered IHS Markit’s pricing and purchasing service, told Fastmarkets on Friday.

“It reflects the fact that demand expectations continue to be lower. And in this uncertain environment, people are stepping back from buying decisions, letting inventories run down,” Mothersole said.

One East Coast steel distributor said he wasn’t sure what the latest Chinese action might mean for his business, but said he would keep his distance from purchasing overseas supply for fear that trade policies could change quickly.

“There are some foreign offers, but… why take the chance on foreign material priced very close to domestic, five months away and [subject to] the threat of another tweet from the president?” he asked.

Prices for most imported flat steel products in the United States - including hot-rolled coil, galvanized sheet and plate - moved lower over the two weeks ended August 21, falling in line with their domestic counterparts.

Fastmarkets’ steel hot-rolled coil index, fob mill US, was calculated at $29.07 per hundredweight on Thursday August 22. The price for steel hot-rolled coil, import, cfr Houston, fell to $540-580 per short ton ($27-29 per hundredweight) on August 21.

Global woes

While some sources remained unconvinced by recent warnings of a potential recession, other industry participants shared concerns that the new tariffs could exacerbate market downtrends.

“We have a potential recession in the US and in the global economy. What causes a recession? Exogenous shock or trade policy mistakes. The uncertainty of trade actions is playing into that second factor, the policy mistakes. That’s what’s grinding the manufacturing sector globally,” Mothersole said.

“The more headwinds, the more hesitation is going to prevail. I think you’ll see this economy [grinding to a] halt,” the aluminium trader said.

Michael Cowden in Chicago and Muyao Shen in New York contributed to this article.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
Proceed