It is a bit hard to believe that any story involving China has been underreported, given China's large role in the global public debate.
But China's transformation into a major auto exporter has been wildly underreported.
(see the hockey stick in exports of finished cars)
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China has gone from a large net importer of finished (mostly from the EU, the Japanese firms never thought they could sell in China w/o producing in China) to a net exporter remarkably quickly ...
(China has been a net exporter of auto parts for some time)
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The US has long been a net importer of autos (mostly from Japan and Korea, but to a degree from Europe too).
And the EU has long been a net exporter of autos.
China has suddenly become a major global competitor
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I suspect that you need a Ph.D in political science -- or perhaps psychology and trade law :) -- to understand why the Commission's main response to a surge in Chinese competition (primarily in EVs) has been to threaten to challenge the US in the WTO ...
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I do understand that the IRA discriminates against European EV exports to the US (there aren't very many yet & the EU EV market is also undersupplied & will absorb any lost sales)
But the big swing in global demand for EU autos right now is coming from China, not the US.
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this thread was inspired both by this Bloomberg story, and the EU's current freakout over the IRA (& its long silence over China's obviously discriminatory policies in the EV sector, which have had a much bigger impact on EU auto exports and employment)
In dollar terms, China's auto exports continue to soar
and imports are also sliding (which matters for Germany)
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the pace of the swing in China's auto trade is stunning -- in the middle of 2021 (3 years ago) China could accurately be described as primarily an importer of finished cars
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Germany had a real business making luxury sedans for the Chinese market from 2008 on --
But its exports to China (measured using China's import data) are now sliding sharply
This NYT headline "Biden’s China Tariffs Are the End of an Era for Cheap Chinese Goods" might describe the results of Trump's across the board tariffs, but it isn't an accurate description of the results to Biden's more targeted tariffs. See the actual data below
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The EV tariffs won't end an era of cheap Chinese EVs in the US market. The will prevent that era from ever starting -- autos are a sector of the global economy that China only is starting to dominate (its emergence as an exporter is new)
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For the goods the US actually buys from China, prices are back at their 2009 level! No inflation there.
Exchange rates still matter. Writing everything as a tariffs story often misses much of the story!
Obviously the section 301 tariff review in the US will dominate the news --
But the CNY still matters. And the first measures of pressure on the CNY in April are out. The PBOC balance sheet shows modest ($3b) in sales (a contrast v q1)
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The state banks reduced their foreign assets by about $15 billion in April, so a combined fall of $20b -- definitely not small, but also not huge (relative to China's stockpile)
Settlement data isn't yet out
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And in the broad sweep of history, China's foreign assets (SCBs + PBOC, there isn't monthly data on the policy banks and CIC) have basically been flat over the last 2 years (the period of CNY depreciation).
China has higher bound tariffs (25%) on autos than the EU (10%), the U.S. (2.5% on cars, 25% on light trucks) and Japan (zero)
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Behind that tariff wall, China developed what is now the world's biggest auto export sector (5.5 m vehicle exports a year and rising fast) and by all accounts a competitive set of EV producers who are now going global
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EVs tend to get all the attention. But the bulk of China's vehicle exports are traditional internal combustion engine cars. And that is where the is clear overcapacity (WSJ reports 40 m in capacity v 15m and falling domestic sales)
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there were concerns (see Keith Bradsher) about overcapacity in China's ICE sector even before EVs took off. Total car demand is now under 25m and it was never over 30m in a sustained way, but folks built for a much higher number. Now supply is potentially basically elastic
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EVs are a bit different -- China made 10m EVs over the last 12ms (over 8 m for the domestic market, just under 2m for export) and most factories are producing close to all out.
But there is also a price and feature going on ...
The US tariffs on EVs and other strategic goods are likely to be the first of many responses to the current Chinese export surge:
"Higher tariffs .... will also hit critical minerals, solar goods and batteries sourced from China"
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I expect the EU to follow, in their own way, given the scale of China's industrial base in these goods and thus its export capacity (countries that want to give their own sectors a chance to scale up likely have to react)
The inclusion of batteries is important -- battery cells and battery packs were tariffed at different rates in the initial Trump tariffs, which makes no sense (the packs -- which are cells wired together -- were tariffed at the low 7.5% rate)
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