Irwin Stelzer: Will Trump drive off Trumpchi?
Donald Trump believes the world trading system is rigged against America, and wants to bring it down. He has found the man who will help him do just that. Robert Lighthizer, the US trade representative, comes from an Ohio steel town ravaged by a flood of imports. He agrees with the president that the hollowing out of America’s manufacturing sector has nothing to do with free trade as described in Trump’s dog-eared copy of The Wealth of Nations. It has to do with China’s unfair trade practices, which the World Trade Organisation (WTO) has done nothing to rein in.
China was admitted to the WTO only after promising to become a free-trading market economy, a promise it has not kept. Instead, President Xi Jinping plans to make China great again by selecting the products of the future to subsidise, protect and lead to world dominance.
If American firms want to do business in the People’s Republic, they must find a Chinese partner and turn over to it their technological know-how and any intellectual property China has been unable to steal. So Lighthizer has joined Japan and the European Union in asking the WTO to deny China the benefits that the organisation accords market economies, and allow them to do what Adam Smith recommends in these circumstances — retaliate. If that plea is refused, America will bolt from the WTO and strike bilateral deals with each of its trading partners. RIP, the post-Second World War multilateral trading system.
Trump’s plan to raise tariffs on steel, solar panels and aluminium are mere skirmishes in a war that will intensify next month when China makes clear that it intends to do to America’s car industry what it has already done to swathes of the manufacturing sector while running up a $347bn-and-rising trade surplus with the United States.
At the Detroit auto show next month, China will unveil a range that it hopes will grab a large share of the market from the domestic and foreign companies that make, or at least assemble, vehicles in America. The name is Trumpchi. You read it right: Trumpchi, a brand sold in China long before the managers of its economy ever heard of the Donald or dined at Mar-a-Lago.
China is already the largest car maker in the world, producing more vehicles than Japan and America combined. It has been selling a small number here for a while. Volvo is now owned by the Chinese giant Geely, and markets its made-in-China S60 Inscription here. Some Detroit-based brands are also made in and imported from China, and Ford plans to move production of the Focus from Michigan to China. But now the onslaught of Chinese-branded vehicles is about to start in earnest, using the advantages of what Trump characterises as a rigged trading system.
We levy only 2.5% duty on each imported vehicle, while the Chinese charge 25% on vehicles from abroad, the highest trade barrier erected by any car producer. That more or less reserves the massive Chinese market for the home-town team, giving manufacturers there the opportunity to obtain the economies of scale needed to crack and eventually dominate the international vehicle market.
The combination of exclusive access to a domestic market and expropriation of superior American technology is hard for any competitor to beat. Lenin once claimed that the capitalists would sell him the rope with which to hang them. Our corporations are turning over their intellectual property to Chinese companies that will use it to outsell them in global markets.
Michael Dunne, formerly a General Motors executive, says that other foreign car makers “are consistently taken aback by GM’s apparently generous technology sharing with Baojun”, China’s fastest-growing auto manufacturer (the company name means “precious steed”).
China plans to sell both gasoline-powered and electric vehicles in America. The electric models will be eligible for any tax credit that US-made cars receive — currently $7,500 (£5,630) a vehicle on the first 200,000 sold by each manufacturer. Since our companies have just about hit that ceiling, and the Chinese companies have not, China will have a $7,500 per car edge when motorists compare the price of its vehicles with those made here. China, however, does not believe that turnabout is fair play. Every electric car sold in China receives a subsidy of $10,000. Well, not every electric car. The subsidy is not available to imported electric cars; only those made in China.
Assume that both an American company and a Chinese competitor market a $50,000 electric car in Beijing. The consumer will face a cost of $62,500, tariff included, for the US vehicle, and a net cost of only $40,000 for the made-in-China car after receiving the $10,000 rebate from the Beijing government. That makes our electric cars uncompetitive in China, while theirs will benefit from the $7,500 paid to US buyers by Washington DC long after American companies have used up their access to the credit. Little wonder that President Xi favours continuation of the current trading system.
GAC, manufacturer of the Trumpchi, is building a $6.5bn industrial park in Guangzhou to, among other things, “carry out the government’s policy”. The company will soon announce whether the Trumpchi name will be retained when the models go on display at the Detroit show. It sounds strange to the American ear, but in the past so did names such as Toyota, Hyundai, Kia and Mitsubishi. One difference. Trump just might intervene to prevent Trumpchi becoming a household name here in America.
Irwin Stelzer is a business adviser
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