Auto Shares Jump as US-China Trade Tensions Thaw

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Auto Shares Jump as US-China Trade Tensions Thaw

Auto stocks in the United States rose in early trade after China’s President Xi Jinping vowed to open the Chinese economy to foreign investors and slash tariffs on imported autos. More generally, U.S. equity-index futures indicated a stronger open.

Xi said in a speech at the Boao Forum for Asia in the southern province of Hainan, which was covered by Reuters, that he would raise the foreign ownership limit in the automobile sector as soon as possible, and he emphasized measures the government has already announced to open the financial sector to outside investors. According to Reuters, his remarks were mostly reiterations of previously promised measures, but they did much to soothe worried investors, sending equities up on the possibility that tensions between China and the United States may be easing. (Learn more about stocks that might be harmed by a trade war with China.)

General Motors (GM) shares were 2.3% higher at 38.73 in early morning trading, while Ford (F) shares were 1% higher at 11.37, and Tesla (TSLA) shares were almost 3% higher. In recent days, the stock market has been roiled by fears that President Donald Trump’s fresh tariff measures may plunge the globe into a trade war. China has previously said that it would react, but Xi’s words aimed to moderate that position. “In the past, China depended on constructing advantageous policies for itself,” Xi stated, according to the South China Morning Post. “We will have to depend more on enhancing our investment environment, aligning with international laws, and protecting intellectual property.” (For additional information, see Tesla: China Recall Affects 8,898 Vehicles.)

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A day earlier, President Trump resorted to Twitter to complain about the auto sector tariff disparity between the two countries, claiming that America had a 2.5% duty on automobile imports while China has a 25% levy.

When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE – going on for years!
— Donald J. Trump (@realDonaldTrump) April 9, 2018

“This year, we will significantly lower vehicle import taxes while also reducing import tariffs on certain other items,” Xi said, according to Reuters, without addressing the United States particularly or specifying how much.

For years, the Chinese government has promised to ease limitations on joint ventures in the car sector with international corporations. With the new restrictions, foreign corporations will be permitted to acquire a controlling ownership in a domestic Chinese automotive manufacturer. Foreigners are now restricted to a 50% ownership, with foreign automakers barred from constructing plants that they wholly control, according to Reuters. That infuriated Tesla CEO Elon Musk, who has said that he wants complete control of production of a plant that the company is discussing building in China. Musk remarked in a tweet after Li’s address, “This is a very significant initiative by China.” Avoiding a trade war will help all countries.”

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