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US-China trade truce brings temporary relief to automakers

The US and China agreed to a truce on their ongoing trade war for now. Both countries agreed to talk out their differences and find solutions to issues that include the protection of intellectual property, transfer of technology as well as cybersecurity.

The US agreed to postpone the proposed hike in tariffs from 10% to 25% on $200 billion of Chinese products for the time-being while China agreed to purchase agricultural and energy products from the US. The tariffs were set to go into effect on January 1, 2019.

President Donald Trump tweeted that China agreed to lower the import tariffs on US vehicles from the current level of 40%. Although the details are not clear, the news seemed to give the auto industry some relief, with shares of car companies climbing during pre-market hours.

The auto industry was hit by the trade war and tariffs which led to price hikes for some companies. China, which is the largest global automobile market, also saw gains in the stocks of some of its car dealers.

Trump effect and trade war: Tariffs imposed by the United States on the world in 2018

Companies like Tesla (TSLA) are likely to benefit from the pause in tariffs as the company had struggled in recent times due to the trade tensions. The tariffs had forced Tesla to first increase the prices of some of its car models in China and then reduce them again recently to make the vehicles more affordable.

Tesla was also looking to speed up the construction of its factory in China in order to avoid the upcoming tariffs. Carmakers Ford (F) and General Motors (GM) have also been impacted by tariffs and were forced to take some tough decisions to improve profitability. The tariffs forced Ford to raise the prices for some of its models in China and also hurt the company’s sales in the region.

Although they were not cited as the reason, tariffs are said to have played a part in GM’s recent decision to stop the production of some models, close factories and cut jobs.

At market open, Tesla’s stock was up 2.4% while Ford’s shares rose 4.4%. General Motors’ stock was up 2.8%.

 

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