Ford Gets Taste of Trump’s Trade War as Chinese Tariffs Threaten Lincoln

Presidents Trump and Xi US and China
A new Chinese tariff will hit US automakers beginning July 6, 2018. | Jim Watson/AFP/Getty Images

As the Trump administration continued waging a trade war against Europe and Asia, automakers braced themselves for new tariffs going into effect July 6. On that date, a few days after America’s Independence Day, China will add a 25% tax on U.S. car imports, The Wall Street Journal reported.

That action by Chinese officials will sting Lincoln, Ford’s luxury brand, in particular. Overall, more than three quarters of the automaker’s sales in China came from Lincoln in 2017.

A week after GM warned trade wars would lead to U.S. job losses and higher prices, Ford executives had to prepare themselves for a similar impact on their business.

New tariffs on cars headed for China

While GM has already offshored production to China, where it produces Cadillacs and Buicks, Ford’s Lincoln operation won’t open until 2019. By then, the luxury brand may be reeling from the loss of business.

In China, the Lincoln brand accounted for 65,000 of Ford Motor Company’s 84,000 sales in 2017. That makes up 77% of the models Ford exported to China from U.S. plants.

According to the WSJ report, analysts saw new tariffs hurting Lincoln more than brands like BMW or Mercedes. The reason? Those brands have a more premium ring for consumers in China (as in America).

Ford’s evenhanded response

LOUISVILLE, KY - OCTOBER 27: A worker builds the all-new 2018 Ford Expedition SUV as it goes through A look at the assembly line at the Ford Kentucky Truck Plant October 27, 2017 in Louisville, Kentucky.
Ford recently invested $900 million in a Louisville plant for upgrades to build the Expedition and Lincoln Navigator. | Bill Pugliano/Getty Images

In response to the trade war, Ford stepped back from the fray in what appears to be an effort to avoid confrontation. “We encourage both governments to continue to work together through negotiation to resolve issues between these two important economies,” a spokesman said, WSJ reported.

That sounded very different than GM’s take on the ongoing trade war. In comments submitted to the Trump administration, the automaker warned of “less investment, fewer jobs, and lower wages.”

Similarly, Harley-Davidson made it clear it would be moving production of its motorcycles overseas after the EU hit the company with a steep tariff.

In response to Harley’s action, Trump offered a warning. “Don’t get cute with us,” he said. “Build them in the USA, your customers won’t be happy if you don’t.”

However, he didn’t offer ideas on affording the new business expenses.

Tesla will be hit by China’s tariffs as well.

As Tesla continues pushing its monthly production volumes, the automaker will face new tariffs in China as well. However, the Model S and Model X already cost over $100,000. Slight price increases won’t hurt the EV maker’s clientele as much.

Lincoln’s more affordable models have competition in the premium crossover and sedan segments. A 15-20% price increase would turn off many buyers considering the brand.

Peter Navarro, Trump’s trade adviser, said the administration wasn’t paying much attention to complaints from GM and foreign automakers.

In fact, Navarro said they “felt betrayed” by Harley’s announcement about offshoring jobs. The administration thought its massive tax cuts would eliminate such concerns.

Maybe it wasn’t aware Harley-Davidson already¬†laid off workers in Missouri after taking its tax cuts. Or that most of that money went to stock buybacks, not new plants.