By on October 25, 2010

It’s been some time since since we had a “Trade War Watch” on mounting trade tensions in the auto industry, and thank goodness for that. In this economic climate of cuts, currency swings and bankruptcies, what we need are things which will make the situation worse, right? In May I reported about how the EU put a 20.6 percent tariff on aluminium wheels from China. The EU did this in response to complaints from domestic manufacturers. Naturally, this left a sour taste in China’s mouth. Well, over 5 months later, you’d think that the EU would have calmed down and this nasty business would be swept under the carpet, right? Erm, not quite….

Bloomberg reports that the EU have not only turned the temporary tariff into a 5 year tariff but increased it from 20.6 percent to 22.3 percent. Chinese exporters like YHI Manufacturing (Shanghai) Co. and Zhejiang Wanfeng Auto Wheel Co. will get hit by this new tariff. But not only will they get stung, but also BMW and Renault will because they buy these wheels from Chinese suppliers. Thus, the price of their cars will rise. The tariff is expected to be imposed by November the 11th.

Naturally, the EU defended this move by claiming that the benefits of this duty outweigh the disadvantages which come on the carmakers. Aluminium wheels are about 1 percent of the total cost of a car, therefore, the cost increase can’t be no more that 0.22 percent according to the EU. “Even this maximum cost impact appears limited in the view of the turnover achieved by car makers,” said the EU. Some automakers have threatened that this move would force them to move production abroad, but the EU dismissed this threat as “disproportionate”.
We”ll keep an eye on the news to see how (or indeed “if”) China hits back. Remember, the EU have far more to lose by China imposing tariffs on EU goods than the other way around. After all, China is far more important to the EU as a market than as a manufacturing center. The EU has 501,064,211 potential customers for Chinese products. China has 1,338,612,968. In this poker game, the EU are holding a four of a kind, China’s got a royal flush.
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19 Comments on “Trade War Watch 16: Hot Wheels Just Got Hotter...”

  • avatar
    M 1

    It is endlessly depressing to me that a nation which produces such a vast quantity of absolute junk has this much influence over world events and the global economy.

    • 0 avatar

      You’d own half what you do if not for China. The US produces more junk than anyone.

    • 0 avatar

      Can’t figure out which position you’re arguing with that one ;)
      Sometimes I’d love to own half of what I do, assuming a commensurate increase in quality. It’s all a matter of degree. We consumers have made our beds, now we have to sleep in them. Or kick the covers off and stop buying Chinese whenever possible. I put a personal ~20% premium on non-Chinese goods, and that willingness to pay more is growing every day.

    • 0 avatar

      @M1, which nation might you be referring to?  China does not have exclusivity on producing vast quantities of absolute junk, by any stretch of the imagination.

    • 0 avatar

      Stop buying Chinese? Good luck. As if.

      Don’t RACISTLY generalize so far as to pretend Chinese products are of lesser quality in general.

      Idiocy will cost you more than 20%.

    • 0 avatar

      M 1:

      If it were possible to buy an American-made television, 100% U.S.-made (not north America) auto, tools/power tools, appliances, etc. would you? At what premium? Most likely only a minority would be willing to pay the premium price required for the company to remain solvent – money talks, unfortunately, and the lowest price usually (but not always) wins. It’s not a question of racial (hopefully – it’s not China’s fault, totally) predjudice, but economics, backed by the willingness of the Chinese government to modernize their country, for better or for worse. If other governments want to play along by allowing their key industries to outsource, well, what choice do you really have?

      One can belly-ache to their heart’s content, but it doesn’t change a thing. It’s humiliating to lose one’s job when their business is obsolete (happened to us), or out-sourced and to feed one’s family at or anywhere near one’s previous living standard, but the best thing to do is simplify to the best of one’s ability and to be resourceful and to NEVER GIVE UP.

  • avatar

    the flip side to that is it’s disappointing that Euros use Chinese wheels as OEM equipment
    if it was truly junk you would think they wouldn’t use them? whither BBS?

    • 0 avatar

      Wheels are “hidden quality” (or lack thereof). Very few owners are going to file warranty claims against Bimmer or Renault over bent or cracked rims, and the incremental cost of fixing or replacing them is still probably a lot lower than sourcing the wheels on the continent to begin with.
      Shareholder win.

  • avatar

    This is just the latest and maybe the last stop to find a place where consumer goods can be produced almost for free, while charging an arm and a leg so the “traveling merchants” can still get theirs. This works so well, because China has a seemingly endless supply of warm bodies who are willing to work for the low wages which are more than they have been making. This is especially important to the auto industry and to us, simply for the fact that our purchase of an auto generally is second to our home in terms of the monetary amount involved and how increasingly the manufacturing process of auto components and eventually the cars themselves are being out-sourced to China and its neighbors.

    Asia appears to be THE place for consumer goods manufacturing, whether it be China, Vietnam, Cambodia, Indonesia, Malaysia or anywhere else in the general area. I don’t see Africa ever becoming the world’s manufacturing engine due to the fact that there are too many small countries and they’re still trying to figure out who and what they are and can’t or don’t seem to want to be united in purpose.

    I don’t posses the deeper facts behind my reasoning, so I keep it simple, paint with a very broad brush and let you who do have deeper info to share it with us and enlighten us.

  • avatar
    Jack Baruth

    Chinese wheels are bad news, whether you are talking about the “AmCast” items on the C6 Z06 or the not-quite-forged rim halves which fail so spectacularly on certain aftermarket products.

    Under no circumstance would I use Chinese wheels with R-compound tires OR the new generation of max-grip streeters. Not that some of the “Asian Tiger” – made wheels are any better. I saw a Kosei snap its rim on the trot during an SCCA National event a few years ago. The result was a 50mph roll on concrete.

    • 0 avatar

      I’ve not read of any issues with BMW OEM wheels, manufactured in China.  Likewise, I know of a bunch of decent aftermarket wheels manufactured in China.

      I just hope the U.S. doesn’t decide to join in. We are already paying the tire import tax/duty. We don’t need a wheel one too.

  • avatar

    ” China has 1,338,612,968. In this poker game, the EU are holding a four of a kind, China’s got a royal flush.”
    Yes, but how big is the current trade deficit between the EU and China?

    Also, that 1 billion figure includes a lot of rural peasant farmers who aren’t going to be buying European goods in any number anytime soon while almost everyone in Europe has the money to purchase Chinese goods.

  • avatar

    Cammy, what kind of trade deficit does the EU have with China?

    • 0 avatar
      John Horner

      65 Billion Euro more imports from China than exports to China as of the first half of 2009:

  • avatar

    I thought that everyone in the EU drove to Andorra for their tax-free aftermarket wheels.

  • avatar

    Aluminium wheels are about 1 percent of the total cost of a car, therefore, the cost increase can’t be no more that 0.22 percent according to the EU.

    1%?  So on a $30,000 car you can buy four new wheels at the dealer for $300?  Maybe they meant each wheel was 1%!

  • avatar
    John Horner

    “The EU has 501,064,211 potential customers for Chinese products. China has 1,338,612,968.”
    Uh, that is not the only way to look at it nor is it the most relevant. The relevant number to look at the monetary balance of trade between the EU and China.
    The most recent report I was able to find quickly dates to the first half of 2009. In that period the EU exported 37 Billion Euro worth of goods to China whilst importing 103 Billion Euro worth from China. Thus, China is fact has more to loose in a trade war with the EU than does the EU.
    The issue of comparative labor and environmental standards is likewise a very real one.

    • 0 avatar

      Simply looking at headline numbers don’t really tell you anything. If the Chinese buy $100 billion worth of luxury cars and LV bags from Europe, but Europe buys $37 billion worth of parts that goes into final products that will now be forced to compete on the world market with higher costs, Europe could very easily have more to lose than China.
      Of course reality is more nuanced (i.e. China does import lots of German industrial machinery), but without looking into the composition of the headline numbers, as well as the price and availability of substitutes, deciding who “has the most to lose” is really just a guessing game, even if it should somehow be a useful metric for anything.

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