Despite minor setbacks, the Chinese automotive industry may come out as a winner in the tariff war

Even after a temporary truce with China on tariffs was reached, the US trade policy keeps re-shaping the global automotive market.

Direct export of finished vehicles from China to the US, which historically is dominated by US brands, is at risk of falling one of the first real victims of the US president Donald Trump’s tariffs.

Currently, Chinese motor vehicles exported to the US represent approximately 1.7% of China’s total global vehicle exports. In terms of US market share, Chinese-produced vehicles account for only about 0.6% of annual sales, commented Roland Foch, managing director of the North American Vehicle Trade Association (NAVTA).

Finished vehicles exported to the US came primarily from the US brands, General Motors (GM) and Ford, which ran several factories in China, an analyst at Hyuatai Securities estimated.

It is not clear how the trade flows were impacted. GM declined to answer questions about its business in China. Ford was not immediately available for comments.

Whatever the outcome is, the impact is expected to be limited by any gauge. In 2024, about 116,000 vehicles were exported from China to the US, according to official customs data.

However, Chinese OEMs can feel the sting of the tariff war as other countries follow the US lead or consider doing so. Canada has similarly introduced tariffs aimed at curbing the import of Chinese vehicles.

“These [Chinese] vehicles are highly competitive in both price and features, and they present a tangible threat to domestic automotive manufacturing, as is already evident in parts of Europe,” Foch said.

The US and Canada have long been taking steps to protect their markets from Chinese vehicles.

“America and Canada remain essentially the only two markets in the world where China does not export its cars. This was true even before the new round of tariffs from the Trump Administration. And it will continue to be true for months, if not years, to come,” said Michael Dunne, an auto industry veteran and the CEO of Dunne Insights, a consultancy.

The Chinese automakers are preparing for the day when the US opens up, which may never come, as this would mean the US has given up on the domestic automotive industry.

“If the US government dropped tariffs on Chinese car imports tomorrow, Detroit would be dealt a devastating blow. Ford, GM and Stellantis simply cannot compete with China’s lower cost structures and price points,” Dunne added.

The restrictions on access to the Mexican market, which are likely, promise to be quite painful for Chinese automakers.

So far, Mexico appears to have adopted a less protectionist stance, akin to the European Union’s earlier position, Foch said.

China exported around 445,000 finished vehicles to Mexico, 7% up compared with the previous year.

“In my view, Mexico may eventually reconsider its approach, especially in light of Europe’s recent actions to counter the influx of aggressively priced Chinese vehicles,” Foch added.

Foch added that while Chinese-manufactured vehicles are gaining traction in the Mexican market, they are unlikely to pose an immediate threat to the US automotive market due to likely non-compliance with FMVSS and EPA standards. Besides, Mexico is looking into aligning its trade policy with that of other North American countries.

Strengthening China

Paradoxically, the US tariffs can help the ongoing expansion of Chinese brands in the global market outside North America. As the US market financially burdens the European, Japanese and South Korean brands, Chinese brands will have weaker competitors in other key markets.

“To a certain extent, US tariffs will weaken automakers with exposure to the US market,” commented Tyson Jominy, vice president of data and analytics at J.D. Power, explaining that most automakers will absorb the majority of their US tariffs expense in order to protect sales volumes and their retailer networks, so the weakness is primarily in corporate profits.

“Having to spend more to sell in the US means fewer dollars for research and development that may hurt automakers in years to come,” he added.

European automotive companies are expected to suffer the most, for example, Mercedes and Audi, said Dr Pal Negyesi, director of CE Auto, a Vienna-based think-tank.

“However, if you look at Hyundai and Toyota, they both have a nice American manufacturing footprint so they are not that affected by the tariffs, plus they do a lot of business elsewhere with models tailored for local markets,” Negyesi said, adding that Chinese OEMs don’t tailor their models to the needs of local markets.

Maintaining a competitive edge remains one of the key factors in the automotive industry, where competition is fierce.

“Chinese have been taking share from foreign brands in the Chinese market in the past few years, due to competitive edge in EV. They’re expanding to South-East Asia, Europe and Latin America, via export and localisation of production, but the scale will remain small as compared to their international peers in the next 1-2 years,” commented Claire Yuan, director, S&P Global Ratings.

Even North America, protected by high tariffs, is not immune to the challenges of enhancing competition in the global automotive market.

“Ultimately, the core challenge facing Canada, the US and Mexico is the increasing competitive pressure within the global automotive market,” Foch noted.

In 2024, China sold 5 million vehicles abroad, remaining at the top of the world’s largest exporters.

According to Negyesi, the tariffs will certainly not hamper the Chinese expansion, which is only gaining steam.

“In Africa, almost every week, there’s news that a new country joins the list of car manufacturing countries - and all of these new ventures are offering badge-engineered Chinese cars. Volumes may be small, but they add up,” Negyesi said

“And then there is the news in Europe - BYD with factories in Turkey and Hungary, Chery in Spain and talking to VW,” Negyesi added.

Nail in the coffin of globalisation

Observers note that the tariff barrage the US administration unleashed on the world economy marks a decisive end to an era of freewheeling globalisation in the automotive industry.

“This may be the final nail in the coffin of the global automotive industry, which is already crumbling due to a lot of different factors,” commented CE Auto’s Negyesi. “[Many] tier-one suppliers are scrambling to stay afloat - Faurecia merged with Hella, Continental is just dismantling itself, Bosch is reorganising itself.”

The situation is particularly challenging for OEMs with a concentrated production footprint in a few geographic locations, commented Steven Van Arsdale, PwC Autofacts Global lead analyst.

The era of protectionism, which may be near, is by definition bad news for the global automotive industry. Among other things, it will mean that the access to the Chinese market likely be limited too.

In this context, J. D. Power’s Jominy said that the rapid shift in Chinese preference to NEVs and to Chinese OEMs poses an even greater threat to existing automakers than anything else.

The impact of the US tariffs on Ford and GM business in China would be negligible since 95% of what the US brands sell in China is built in China, Dunne said. However, the turn in the market to Chinese models, fueled by consumer protectionism in the country, can become a real challenge.

The changes in the Chinese automotive market landscape are already seen. For instance, Nissan has recently announced plans to cease Wuhan production by March 2026 amid fierce competition with local players.

“Many western and non-Chinese Asian companies were banking on the world’s top vehicle market to be a source of high volumes, but that is no longer a certainty. Combined with the sluggish transition to EVs in many critical European countries and North America, Western auto companies are dealing with operational challenges on many fronts,” Jominy said.

“Compared to navigating those waters, the task of onshoring to US production is relatively straightforward sailing,” Jominy added.

The US tariff does complicate the strategic planning for carmakers, if the tariff prolongs and the global trade landscape shifts, S&P Global Yuan said, assuming that most companies will prefer to take a wait-and-see stance, looking forward to the dust to settle.

“Given the fluid situation and the investment needs in relation to electrification, we expect carmakers to be careful in adjusting their capital allocation plans,” Yuan added.

Amid these changes, diversifying supply chains is becoming a strategic priority for OEMs.

The imposition of tariffs tends to elevate goods costs, prompting OEMs to explore cost-efficient manufacturing and logistical solutions, Arsdale said. This includes reassessing shipping routes, transport modes, and warehousing strategies to optimise both costs and efficiency amidst new tariff structures, Arsdale said.

“By reducing reliance on any single country, especially those with high tariffs, OEMs aim to ensure continuity and stability in production through sourcing components from a wide array of geographic regions,” Arsdale said.

“This strategy, while beneficial for resilience and flexibility, also results in greater operational complexity. Consequently, global logistics operations are expected to become more intricate as companies adapt their supply chain strategies to meet these evolving demands,” Arsdale added.