Trade war: Auto industry feels the heat

(FinancialPress) — The trade war between the US and China has claimed its first casualty. Daimler‘s profit expectations for the years have been lowered. The German carmaker announced last week that its expected results for 2018 were slightly modified to reflect the impact that the new tariffs to be applied by Beijing will have. After they are enacted, Daimler believes Chinese customers will opt for other auto alternatives and therefore lower its unit sales.

Cars hold the 2017 #3 spot among the products the US exports to China the most of.  Despite the fact that the trade tensions are between those two countries, German manufacturers find themselves in the middle of the fracas – as they produce 60% of their China exports in the US.

Daimler is the first company to publicly disclose the effect the trade wars will have on its operations. It has several factories and distribution centers across American soil.

BMW holds onto its profit expectations for the year – but is wary of the landscape‘s possible bleak outlook. They have started to look at strategic options in case matters worsen.

The bigger picture

The protectionist tariffs brought upon by the dispute will cause moving consumer products across borders to cost more. This leaves companies will have to either absorb the increased cost and have them bite into their profits, or pass it down to the final consumer. Daimler has disclosed that only some of the cost will be passed down to consumers – but that could be enough for it to experience lower sales volumes.

The US-China trade dispute can potentially disrupt the global market. The two countries have a combined trade flow of approximately $635 billion – and the auto industry may be only the first victim. The tech industry could also find itself affected which could mean a global price escalation in order to avoid disrupting that massive trade flow. If companies can offset the loss across multiple markets, the effect on the massive Chinese one alone can be dissipated.

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