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Published : 01 May 2025, 08:50 PM
Donald Trump’s global trade war is set to heat up competition outside the world’s two largest auto markets, China and the United States. Yet both the People’s Republic and Detroit will share in the pain.
Washington had locked Chinese carmakers out of America before the US president slapped 25 percent tariffs on auto imports this month. Though Trump on Tuesday agreed to prevent auto tariffs from stacking on top of other duties and to offer local manufacturers some relief from charges on imported parts, his double-digit levies on vehicles will nonetheless force companies like GM, Toyota, and Hyundai, into a race to grab market share in other regions.
That spells trouble for China. Autos are a growth engine, accounting for 10 percent of the country’s GDP and 6.5 percent of exports last year, according to Tommy Wu, senior economist at Commerzbank. They also are a symbol of China Inc’s ability to keep factories humming at home and to achieve technological dominance overseas.
In China, domestic demand for cars was already weak. BYD, Geely, SAIC and compatriots sent nearly 6 million vehicles abroad last year, a 19 percent year-on-year increase. Overall, automakers in the country have capacity to supply half market of about 90 million.
Now, Washington’s broader trade assault against China could leave carmakers with even fewer buyers in the Middle Kingdom. At the opening of the Shanghai auto show last week, Chinese automakers, suppliers, and software providers told Breakingviews that their focus this year will be on selling more elsewhere.
Chart shows that exports account for a growing percentage of China's sales of internal combustion engine passenger vehicles, whereas exports are less significant as a proportion of electric-car sales.
ROADBLOCKS
That strategy looks increasingly fraught. Russia, the biggest overseas market for Chinese marques, is turning hostile to outsiders too. In the wake of the Ukraine conflict, Made-in-China cars flooded into the eastern European country to fill the void left following hurried exits by Western rivals including Toyota, Volkswagen, and Stellantis.
By last year, Chinese peers including Geely and Great Wall, accounted for more than half, of the Russian market, and these sales alone made up around a fifth of China’s auto exports, per Rhodium, a New York-based research group. Beginning in 2025, however, Moscow introduced quasi-tariffs by hiking a recycling fee for each vehicle sold. Local brands can reimburse this fee. Foreign ones cannot.
China’s auto exports to Russia in the first two months of the year amounted to around 60,000 vehicles, suggesting the first quarter total will fall far short of the roughly 170,000 Chinese exports tallied over the same period last year, per International Trade Centre data. It’s a sour commercial outcome for China whose foreign minister, Wang Yi, during a trip to Moscow in April described the duo as “friends forever, never enemies”.
Of course, the US and Russia aren’t the only ones erecting barriers to China’s automaking might. Turkey, Brazil and the European Union are among those attempting to put up walls too. The bloc increased tariffs on Chinese-built electric vehicles to as much as 45.3 percent last October.
Only a handful of countries that do not have sizeable auto brands or local manufacturing to safeguard are truly open to Chinese imports. These include Australia, Norway, and Saudi Arabia. The UK also remains an opportunity for now because it has not matched Brussels’s tariffs on electric vehicles. In total, the cluster of economies that welcome Chinese carmakers probably represents around 10 million in combined annual sales, per Rhodium.
CHERY ON TOP
Sending cars to these dozens of small, fragmented markets is hard work, but one Chinese company is making a success of it. Anhui-based Chery sold its first car abroad in 2001 and has expanded to sell vehicles in more than 100 countries, becoming China’s largest auto exporter, according to a prospectus, for its planned initial public offering in Hong Kong. In the first nine months of 2024, the state-owned company’s overseas sales rose by more than 35 percent to 80 billion yuan and the group achieved a pre-tax margin of over 7 percent, similar to General Motors.
However, it has never cracked the United States, and many of its individual markets are tiny. This strategy is like trying to strip meagre meat from chicken ribs, says Yu Zhang, founder of Shanghai-based consultancy AutoForesight. Chery’s total sales are dwarfed by the nearly $180 billion revenue GM reported for the full year 2024.
Chart shows that China's auto exports are well diversified, and major markets include Russia, Central and South America, Middle East, Africa and the European Union, among others.
As others try to emulate Chery, competition in these modest markets will intensify. And, here, the Detroit 3’s global footprint overlaps with Chinese exporters’ targets: only around 40 percent of Stellantis’ sales are in North America; nearly a third of Ford’s, and about a fifth of GM’s are outside the US, per LSEG.
Europe is Ford and Stellantis’ largest market beyond the United States. South America is the next largest for Stellantis, and GM has sizeable operations there too. Places like Mexico, where internal combustion engines are still popular, will become key battlegrounds. Some 75 percent of China’s exports last year were gas guzzlers.
The signs of saturation are emerging thick and fast. Analysts polled by Visible Alpha expect Ford’s South America revenue growth to slow to under 4 percent this year, compared with 31percent in 2024; GM and Stellantis’ South America unit sales are likewise expected to show low single-digit growth.
Meanwhile, China’s Passenger Car Association warns auto exports from the country may decline for the first time in five years. Japanese and American companies’ China sales fell by 18 percent and 23 percent last year, respectively, according to Automobility, a consultancy. Stellantis, Mitsubishi and Renault, have effectively left the market. GM took a $5 billion writedown in December, some of which related to plant closures in the People’s Republic. Nissan, has slashed capacity in the country too.
Shows many automakers in China are using less than half of their production capacity.
Chinese champions are due for a shakeup too. State-owned Dongfeng, which works with both Honda, used about half of its passenger vehicle capacity in 2024 and is discussing a merger with fellow state automaker Changan, one of Ford’s JV partners, for example.
The importance of the auto industry to China, though, means its carmakers are unlikely to cut capacity as quickly as global peers. State-owned enterprises are also typically less fussed about profits than their private rivals. Trump’s trade war will hurt carmakers around the world, not least the People’s Republic. But China Inc. might have a higher tolerance for pain.
[Katrina Hamlin is global production editor for Reuters, based in Hong Kong. She is also a columnist, writing on topics including autos and electric vehicles, as well as the gambling industry in Macau and Asia. Before joining Reuters in 2012, Katrina was deputy managing editor of Shanghai Business Review magazine.
