Trade War Watch: Germany and China Now Best Friends

Matt Posky
by Matt Posky
trade war watch germany and china now best friends

China and Germany signed a collection of commercial accords valued at $23.5 billion this week. Meanwhile, the nations’ leaders publicly affirmed their commitment to a multilateral global trade order, while the United States adopts a more protectionist policy.

“We both want to sustain the system of World Trade Organization rules,” German Chancellor Angela Merkel said during a press conference. Chinese Premier Li Keqiang, also present, agreed and stated protectionism must be prevented for the good of the global economy.

Chinese President Xi Jinping has already pleaded for governments to maintain an open trading policy. “We reject selfish, shortsighted, closed, narrow policies, [we] uphold World Trade Organisation rules, support a multi-lateral trade system, and building an open world economy,” Xi said in an incredibly hypocritical speech from last month.

While China has promised to open its market a bit, the country’s trade practices remain exceptionally protectionist. All banks are state-owned and the nation has proven highly aggressive in keeping foreign investments to a minimum — unless they somehow benefit the country in the long term.

The automotive industry sees this in the form of state-mandated partnerships that require manufacturers to join with established Chinese firms. Critics claim these moves force businesses hoping to gain entry to the lucrative Asian market to lose access to their own intellectual property and hand over profits, as China gets a leg up on technologies that would have taken years to develop. The People’s Republic also imposes fairly large import tariffs on high-end goods produced outside its borders, especially cars.

The Trump administrations’ recent tariff proposals seem to exist primarily to counter these issues, dampening China’s plan to become the global leader in all advanced technologies and manufacturing by 2025. But the resulting trade war has created strange bedfellows. The United States had hoped threatening new import duties would encourage Europe to ease off on some of its own. While that approach appeared to be working, with promising rhetoric coming from Merkel, it now looks like Germany may be more interested in siding with China — a country currently retaliating viciously against new U.S tariffs.

In May, China promised to lower its tariffs on imported cars to just 15 percent as a way to appease the United States. However, things didn’t play out that way. The People’s Republic ended up raising U.S. auto import duties to a massive 40 percent.

According to Reuters, the Chinese-German commercial accords include deals with Siemens, Volkswagen, BMW, and BASF. The Chinese government had said that German companies and institutions would soon be able to issue bonds in renminbi in China — a very big deal. But it’s just a promise and the Chinese government doesn’t seem to be particularly good at keeping them.

Some German companies and politicians have complained that Germany is too accommodating toward Chinese businesses, while China has been less than willing to return the favor. There’s also been a string of high-profile takeovers by Chinese firms. While Merkel welcomed the opening of China’s financial sector, she still requested that Beijing continue opening its other markets.

Meanwhile, the United States continues to squabble with itself over Donald Trump’s tariff proposals. It’s plain to see that China is hitting below the belt (if there is such a thing in business), but the Senate voted overwhelmingly against the trade deal on Wednesday — saying the president should seek congressional approval before using national security as a reason for imposing tariffs on other countries.

The majority of its complaints focused on how a hyper-aggressive trade policy might risk alienating allied nations and risk domestic investments. Automakers have already claimed new U.S. tariffs on automobiles and parts would severely hamper their ability to do business effectively. We’re wondering how they feel about China’s new tariffs.

[Image: Volkswagen Group China]

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  • Jeff S Jeff S on Jul 12, 2018

    Big Al, Maybe so but I want to stay hopeful that trade agreements can be worked out.

  • Conundrum Conundrum on Jul 12, 2018

    This kind of bullshit article by Posky, that well-known expert, and the rampart alt-right idiotic commentary is why I need to get the fuck out of this whingeing dead end of a "car" website. Delete my account forthwith or I'll be on to Torstar to see why you pack of sad jokers cannot accomplish even that

    • See 1 previous
    • Hydromatic Hydromatic on Jul 13, 2018

      @Adam Tonge Or maybe you guys can just stick to car reviews instead of posting political articles just for the clicks.

  • BklynPete So let's get this straight: Ford hyped up the Bronco for 3 years, yet couldn't launch it to match the crazy initial demand. They released it with numerous QC issues, made hay for its greedy dealers, and burned customers in the process. After all that, they lose money on warranties. The vehicles turn out to be a worse ownership experience than the Jeep Wrangler, which hasn't been a paragon of reliability for 50 years. The same was true of the Aviator, Explorer, several F-150 variants, and other recent product launches. The Maverick is the only thing they got right. Yet this company that's been at it for 120 years. Just Brilliant. Jim Farley's non-PR speak: "You don't get to call me an idiot. I get to call myself an idiot first."Farley truly seems hapless, like the characters his late cousin played. Bill Ford is a nice guy but more than a bit slow on the uptake too. They have not had anything resembling a quality CEO since Alan Mulally turned the keys over to Mark Fields - the mulleted glamor boy who got canned after 3 years when the PowerShi(f)t transaxles exploded. He more recently helped run Hertz into the ground with bad QC and a faulty database that had them arresting customers. Ford is starting to resemble Chrysler in the mid-Seventies Sales Bank era. Well, at least VW has cash and envies Ford's distribution reach and potential profitability.
  • Mike Beranek This guy called and wants his business model back.
  • SCE to AUX The solid state battery is vaporware.As for software-limited pack capacity: Batteries are obviously the most expensive component of an EV, so on the rare occasion that pack capacity is dramatically limited (as in your 6-year-old example), it's because economies of scale briefly made sense at the time.Mfrs are not in the habit of overbuilding pack capacity just for fun, and then charging the customer less.Since then, pack capacities have been slightly increased via software because the mfr decides they can sacrifice a little bit of the normal safety/wear margin in the interest of range. We're talking single-digit percentages, not the 60/75 kWh jump in your example.Every pack has maybe 10% margin built into it, so eating into that today (via range increases) means it's not available to make up for battery degradation tomorrow. My 4-year-old EV still has its original range(s) and 100% SOH, but that's surely because it is slowly consuming the margin built into the pack.@Matt Posky: Not everything is a conspiracy to get your credit card account, and the lengthy editorial about this has nothing to do with solid state batteries.
  • JLGOLDEN In order for this total newcomer to grab and hold attention in the US market, the products MUST be an exceptional value. Not many people will pay name-brand money for the pretty mystery. I can appreciate the ambition of selling $50K+ crossovers, but I think they will go farther with their $30K-$40K offerings.
  • Dukeisduke They're where Tesla was when it started - a complete unknown. I haven't heard anything about a dealer network. How are they going to sell these? Direct like Tesla? Franchises picked up by existing new car dealers?
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