Automaker, supplier stocks slide after China’s retaliatory tariff threat

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The stocks of many Southeast Michigan companies tied to the auto industry fell Monday after China announced retaliatory tariffs in the latest chapter of the tit-for-tat trade war with the U.S.

China’s Ministry of Foreign Finance said it would increase tariffs on 2,493 U.S. products to 25 percent, Bloomberg reported. The tariffs on $60 billion worth of U.S. goods are Beijing’s response to President Donald Trump’s announcement last week that the U.S. would increase tariffs on $200 billion worth of Chinese imports, particularly auto parts.

Stock indexes in the U.S. were down 2 percent Monday. Stock futures for Detroit’s Big Three automakers followed suit. Ford Motor Co. (NYSE: F) saw a 1.5 percent drop to $10.22 per share, General Motors Co. (NYSE: GM) fell 2.4 percent to $36.99 per share, and Fiat Chrysler Automobiles (NYSE: FCAU) dropped 2.5 percent to $14.34 per share.

Auto suppliers are also being hit by the ripple. American Axle & Manufacturing Inc. (NYSE: AXL) saw its price per share fall nearly 5 percent to $11.51, while Lear Corp. saw a 4 percent drop to $134.77 per share. Delphi Technologies/Aptiv PLC (NYSE: APTV) was down 5 percent, BorgWarner Inc. (NYSE: BWA) 4 percent and Visteon (NASDAQ: VC) nearly 7 percent.

Before the new tariffs on the U.S. were announced, Trump took to Twitter to defend his administration’s decision to slap more tariffs on Chinese goods.

“…China has taken so advantage of the U.S. for so many years, that they are way ahead (Our Presidents did not do the job),” Trump said in the Tweet. “Therefore, China should not retaliate-will only get worse!”

China’s increased tariffs are set to take effect June 1. Tariffs on 2,493 U.S. goods would increase from 10 to 25 percent, while 1,078 items would see tariffs increased from 10 to 20 percent, and 974 items from 5 percent to 10 percent, according to Bloomberg News. The American imports affected range from beer and wine to frozen vegetables and liquefied natural gas.

The trade war has created a cloud of uncertainty over firms in Southeast Michigan and forced many of them to a standstill on decisions related to labor force and capacity. Even companies that don’t trade directly with China are being impacted if they do business with companies that do trade with China, said Kyle Handley, assistant professor of business economics and public policy at the University of Michigan.

“It’s created a very difficult environment for business in general,” Handley said. “There’s not a lot of ways this works out good for companies. They’re just missing out on sales right now, and while that’s happening, they may be losing market share to foreign competitors that they will not get back.”

Tariffs on Chinese goods are paid by U.S. purchasers, which then usually pass the costs on to consumers. They hurt Chinese companies because purchasers are more likely to import goods that are not taxed. U.S. officials hope the tariffs force China to abide by international trade rules, especially intellectual property rights, which it has long violated.

Kristin Dziczek, vice president of industry, labor and economics at Ann Arbor-based Center for Automotive Research, said tariffs are increasing the cost to produce cars in the U.S. because about 3 percent of each car is composed of Chinese goods. On average, the production cost has risen by $190 per vehicle.

“Our automakers who are producing vehicles in Canada and Mexico are not facing these higher tariffs,” she said. “You’ve all the sudden made U.S. production less competitive with Canada and Mexico.”

Trade talks between Washington and Beijing fell through last week. Trump has indicated that more tariffs on Chinese goods are on the way, and China has not said whether there would be tariff increases beyond those announced Monday. However, since the tariffs do not go into effect immediately, there is still conceivably a chance for leaders of the two countries to strike a deal, the New York Times reported.

Even if a deal is done tomorrow, the damage has been done, Handley said.

“Even if China reduces the tariffs or takes them off, they may be continued to be viewed as a temporary reprieve in what is a wider trade war and economic conflict,” he said.

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