Tariffs a bump in the road for autos

Analysts believe that tariffs will assume a more prominent role in auto company business decisions, including virtually eliminating Chinese exports to the US, after Ford Motor Co ended plans to sell a Chinese-made vehicle because of American duties.

Ford abandoned plans to sell the Chinese-made Focus Active in the US last week after Washington imposed duties on Chinese vehicles of up to 25 percent as part of an escalating trade dispute with China.

US President Donald Trump is also considering a proposal to impose tariffs on all imported vehicles on national security grounds.

As long as the tariffs on Chinese auto imports are in place, it makes zero sense to export from China to the US unless a manufacturer can get premium pricing, said David Whiston, industry analyst with Morningstar Inc.

"A crossover derivative of the Focus doesn't pass that test and Ford knew it. I wouldn't expect much if any autos to come into the US from China soon," he said.

Stephanie Brinley, an analyst with IHSMarkit, said a tariff could affect decisions on whether an automaker imports a vehicle from China, but it does not necessarily mean local production will be the result.

"Ford will simply step out of the segment," she said. "A 25 percent tariff on vehicles imported from China is a significant barrier, one the automakers cannot absorb, and has potential to make the vehicle more expensive than consumers are willing to pay."

Whiston agrees. "You can't use China as an export base to send a vehicle to the US (as) a 25 percent tariff is too great. Americans will be denied vehicles such as the Buick Envision (from General Motors) or a crossover-based Ford Focus.

"Reducing choice due to government intervention isn't how a demand-based economy should work, but with Trump's policies very set against trade deficits with China, this will be the norm for a while," he said.

GM is asking for an exemption to the 25 percent American tariff on the Envision, a midsize sport utility vehicle that is already being sold in the US.

"GM seems to be set on terminating the Envision in the US without the waiver it is seeking as it says Envision volume is not high enough to justify US production," Whiston said. "I hope GM can work it out as Buick needs that vehicle in the US. It fits a nice niche in crossovers, whereas the Encore can be too small for families and the Enclave is too big and expensive for some American households."

Brinley said GM would be unlikely to move production of the Envision from China to the US if the waiver is declined.