Elon musk's tweets regarding the issue of selling cars in China.
http://money.cnn.com/2018/03/08/news/economy/elon-musk-trump-china/index.html
Summary:
The U.S. currently has a $379 billion trade deficit with China, exporting way less than it imports, and the Trump administration is trying to decrease that amount by $100 billion this year (Trump seems to have accidentally tweeted an incorrect number of $1 billion). After Trump tweeted yesterday about reducing the trade deficit with China, Elon Musk responded today by asking if "the US & China should have equal & fair rules for cars." Currently, our cars exported to China face a 25% import tax, while Chinese cars face only a 2.5% tax in the U.S. Trump read the tweet aloud in a speech today and stated that he might eventually raise our tax on imported Chinese cars to match what China has for us. Trump and Elon Musk both seem to want fairness, and seem to believe that tariffs may help those issues.
Analysis:
I believe Elon is a fiscal conservative, so it's not too much of a surprise for him to be on the same page as Trump. I don't really see a clear cut solution, as if we raise our tariffs, we risk a trade war, and there will definitely be a large outcry just like the steel and aluminum tariffs, but if we don't there is a major discrepancy between us and China. This issue is obviously one that relates to competition, especially the government's role in it.
Questions:
1. Is it justifiable for us to raise our import taxes on automobiles? Is this the same as the situation with steel/aluminum?
2. Is there a chance that China could lower its tariffs against us? Would it be mad if we raised ours?
3. Would balancing out the car industry improve our trade deficit?
9 comments:
Although I do believe that there should be more of a fair trade-off in many industries that export globally, I'm not so sure about automobiles. The reason why the import tax is so low for cars from China is so that car manufacturers can keep the prices of their products low. Think about how many cars you see everyday made by Toyota, Honda, and other Asian manufacturers. These are very affordable, and very reliable cars that are crucial to millions of Americans' daily lives. Raising the import tax on these would hurt millions of American families' incomes. It's been a while now since the US has asserted itself as a majority importing country, and I feel like Trump is trying to force us back into our industrial days. There has been increasingly less demand for blue collar jobs in manufacturing, and much higher demand for educated, skilled workers in other areas, and I think that Trump fails to embrace this reality.
I do not believe increasing tariffs with one of our largest trading partners is a good idea. Given the sheer quantity of trade between the US and China, a better solution would be negotiating to lower tariffs instead of risking a trade war. It is understandable that China still has tariffs politically, as their communist history would encourage tariffs on America to protect their financial independence. America, however, largely champions a free market and placing tariffs would not make sense politically, unless Trump wants to further develop America as an isolationist society. With China’s shift towards a democratic society, and America’s history as one, a decrease in tariffs seems likely in the future.
I agree that the best course of action would be negotiating tariffs down with China rather than simply matching their ridiculously high import taxes. Raising tariffs on Asian auto manufacturers would make the price increase a lot, decreasing competition with American brands and ultimately making the average consumer pay more for their automobiles. Because we have a relatively open market for cars, brands need to compete for sales with brands from all over the globe, with Chinese autos being a big one. If there is a lack of competition, it will be easier for car manufacturers to set their prices high and make the average American pay the difference.
In response to question 3, yes it would improve our trade deficit. If we are importing less Chinese cars, that gives American brands a good, safe marketplace in which to operate, satiating the needs of American consumers without crutching on a foreign economy.
Daniel makes an excellent point that it is a much better idea to negotiate with China and convince them to decrease their import tariffs rather than simply increasing our own tariffs to match Chinas. This would hurt Americans who rely on automobiles to get to work, and live their lives. Although raising import tariffs would improve out trade deficits, and would improve American firms ability to compete at home, it is not quite that simple. American manufacturers also rely on being able to sell their products in other countries. If those other countries decide to respond to American tariffs with higher tariffs of their own, American manufacturers would suffer great losses in markets around the world. That would be the outcome of Donald Trump's trade war. He seems to think we would easily win any trade war we started simply because of our sheer size and power in the world economy, and he is probably right that in the long run we would probably win, but the costs incurred would be enormous. It has been said that there really are no winners in war, only those who do not lose as badly, and I think that would apply just as well to a trade war as to one with guns and bombs. I don't know that any benefits we would gain from winning a trade war with China would justify the immediate costs to American industry.
I personally thought it was funny and a bit concerning that Elon Musk said directly in his tweet "hope this does not seem unreasonable." Arguing this from a libertarian perspective, I'm not sure why Musk is allowed to be involved in government negotiations, and I'm not sure why Trump is willing to take his word on it being unfair.
While obviously this impacts Mr. Musk's business heavily, I think the way he is tweeting back and forth with Trump on the issue almost makes it seem like this tariff is doing Elon a personal favor...
I agree with all those above that trying to renegotiate with China should proceed any brute force trade tactics. They have a vested interest in the American market as much as we have an interest in the Chinese market. Surely a big New York real estate guy like Trump could make us a better deal. (haha)
I really don't think raising import taxes on automobiles will help the foreign automakers who are the inherent beneficiaries of this whole deal the US negotiated with the EU many years ago. CNBC ran a news segment about the foreign auto-tariffs the other morning which essentially said that the EU has a tax upwards of 50% on American made trucks which I think is within reason to be concerned about. Most sedans and minivans however are made either in Mexico or Canada due to NAFTA or in China for the relatively cheap labor and ability for low input production costs (steel goes for a steal in China because they have so much). Honestly, taxes on aluminum and steel somewhat make sense because China tries to offload their steel in other nations by shipping containers full of it to South American countries that suspiciously "lose" the origin tag and somehow the container ends up in a US harbor. To me, this seems unfair.
There is no way China is going to lower taxes on US goods unless we make the initiative. This is what President Trump is attempting to do.
Balancing out the trade deficit with American cars showing up in China is simply unfathomable. Their roads make our cars look impractical.
I see Elon's point that taxes and tariffs should be equal between China and the US, however this view is very selfish. There are millions of people that rely on cars for transportation, and increasing taxes on Chinese car imports would only help American automakers. Chinese car prices would drastically increase if taxes were high, and many consumers would be unable to purchase a car due to the high prices. Furthermore, an increase in import taxes would make the Chinese car producers to become distrusting of the American market and possibly even angry at it. Equality is good, but this excuse does not work if bringing equality in taxes would hurt many people from being able to buy cars. Instead of just increasing taxes to match other tariffs, the Trump administration should first talk with Chinese producers or increase in increments without going too high.
I'm wondering how these tariffs will affect the other countries' tariffs on American goods, since it seems like when we increase tariffs, the other countries would react by raising their tariffs on American made products. However, since these other countries like China, or like the EU as Nick has mentioned, already have high tariffs, I think there is another solution somewhere as to how to resolve this issue, with negotiations or something.
I don't think that automobiles are a big factor for the trade deficit. I have yet to see a Chinese car dealership or even a Chinese car in person. I also highly doubt that many American cars are sold in China. In addition, lots of people are bringing up how higher tariffs would heavily increase the expense of Japanese cars, which is highly unlikely. There are less than five Honda manufacturing plants in China and exactly zero Toyota plants. To be honest, I don't know if a tariff would cover a Japanese car made in China sold into the US, but the chances of a tariff of on Chinese cars raising the price of Japanese cars in America is extremely unlikely. Since popular Japanese car brands have very few manufacturing plants in China, if the cost of having those branches means a drastic price increase, then closing those plants makes way more economic sense then keeping them open.
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