What's going on?
German car manufacturer Daimler reduced its profit expectations for the year on Wednesday due to the US-China trade war. Shares of Daimler and the rest of the European car manufacturing sector skidded to a halt on Thursday, down 4% and 2.5% respectively.
What does this mean?
Cars were the third most exported product to China by the US in 2017. However, the 25% tax by China on US-made cars actually hurts German manufacturers – they produce over 60% of the cars exported to China from the US. Daimler’s the first company to break its silence on the trade war and explicitly say that it’ll hurt profits. The manufacturer has factories across the US, producing and shipping cars globally.
BMW – the biggest exporter of cars from the US to China – hasn’t changed its profit outlook for the year, but it’s looking at strategic options in case things get worse.
Why should I care?
For you personally: Trade wars can be bad news for consumers.
Protectionist tariffs mean it costs more for companies to get goods across borders. They face two options: either take the hit to their own profits, or pass on the cost increase to consumers by charging higher prices. Daimler will only pass on a percentage of its higher costs to Chinese customers, but this still may mean fewer car sales.
The bigger picture: A US-China trade war can also cause pain globally.
The trade lines between the US and China are significant. $635 billion in combined trade flows between the two countries (tweet this)– and industries such as technology (the largest imported product from China to the US) could be the next sector hit. The escalating trade war between the two countries is being watched closely as it can impact everyone – global companies may look to hike prices elsewhere across the world to offset cost increases in the US and China, not wanting to damage sales in these two mega-markets.