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 Richmans' Trade and Taxes Blog

GM caves again -- will build Cadillacs in China
Howard Richman, 5/3/2012

In December, the British newspaper The Guardian reported that the Chinese government raised its already high 25% tariff upon American-made vehicles, concerned that a few American cars were still being purchased by Chinese consumers:

General Motors faces the greatest impact, almost 22% extra on some sports utility vehicles (SUVs) and other cars with engine capacities above 2.5 litres. Chrysler faces a 15% penalty, while a 2% levy will be imposed on BMW, whose US plants make many of the cars it exports to China.

Existing taxes and duties already push up the cost of US imports by 25%, and the new levies make it even more expensive for Chinese consumers to buy American.... 

This month, that measure had the desired effect. In a May 2 Huffington Post commentary (Commies in Cadillacs: GM Turns Chinese),  economists Peter Navarro and Greg Autrey reported that GM will build its luxury cars in China in order to sell to the Chinese market. They began:

General Motors announced this week that it will start building the Cadillac XTS, CTS and ATX in China in an attempt to keep up with the insatiable demand for luxury consumption by that nation's nominally Marxist elite. It seems that Communist Party princelings and their crony capitalist clients just can't get enough Caddies, not to mention the BMWs, Ferraris and Lamborghinis....

The Cadillac announcement nicely underscores the source of this problem. China Car Times notes "Currently the car is imported from the USA which makes it price much higher than it should be due to higher taxes on imported high displacement vehicles." A great way to target American imports and jobs. Chinese bureaucrats and law makers at all levels have internalized a national industrial policy which impedes imports from the U.S. while welcoming the American capital investment that creates jobs in China. Most North American made cars imported into China get hit with about a 25% tariff while the Chinese cars that are beginning to sneak into our market a paltry 2.5% tax. DOH!

And don't forget that on September 16 the Wall Street Journal reported (Road Gets Bumpy for GM in China) that the Chinese government was pressuring GM to give away its proprietary electric car technology. At that point GM was refusing. Here's a selection:

GM would like to bring its Volt electric car into China. But Chief Executive Dan Akerson said he refuses to share electric-car technology in exchange for hefty consumer rebates from the Chinese government that would juice sales of the vehicle.

Then, just one week later, on September 22, the NY Times reported (GM to develop electric cars with Chinese automaker) that GM had caved to the Chinese government demand:

HONG KONG: General Motors said Tuesday that it would develop electric cars in China through a joint venture with a Chinese automaker [SAIC], and would transfer battery and other electric car technology to the venture.

This is Obama's car company we are talking about. GM (Government Motors), the company that Obama saved from having to pay its pension benefits, the company that Obama saved from being owned by its bondholders, the company that Obama saved from break-up into its constituent parts, the company whose saving Obama claims as his biggest accomplishment. Here it is giving its made-in-America technologies to its Chinese partner/competitor. Why?

The reason is simple. Manufacturers know that they can produce in China and sell to the United States, but they can't produce in the United States and sell to China.  All because the Obama administration does not have the intelligence or will to invoke the WTO rule for trade deficit countries invoked by President Nixon on August 15, 1971, when he imposed an across-the-board 10% tariff which balanced U.S. trade by 1973.

Perhaps the next President will invoke that WTO rule. We recommend that he demand trade reciprocity (we buy your products; you buy ours) by imposing a trade-balancing scaled tariff upon imports from all the countries with which the U.S. has a trade deficit. Such a tariff would go up when the U.S. trade deficit with a country goes up, down when it goes down, and disappear when trade with that country approaches balance.

If the United States were to require reciprocity, then GM would be able to produce its Cadillacs and Volts in America and still have access to the Chinese market. Not only that, but it could preserve its proprietary technologies for its own use, instead of having to share them with its Chinese competitors.

Comment by Ray Edwards, 9/9/2012:

In Nov you have a choice

Comment by , 9/14/2012:

Well, if you can't beat them, join them, I always say. It's true, the costs for American cars on the Chinese market is high and it's wiser to develop a car there rather then export it from US. I want to donate car USA and get a new, electric one. It's more environmentally friendly and cheaper to charge.

Comment by Robin Onaca, 10/3/2012:

I can't believe that GM chose to sacrifice the quality of their flagship model, the Cadillac by outsourcing their production to China. I know that other major car manufacturers, like Mercedes have already done so, and with excellent economic results, but they also invested heavily in quality control. I'd hate to see the Cadillac turn into another production line car.