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TRADE War effects?

Discussion in 'Model S' started by CUBldr97, Jul 6, 2018.

  1. CUBldr97

    CUBldr97 Member

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    How will this new trade war affect TESLA exports to Canada, EU etc. TESLA has had plans to build a plant in China ,due to issues there, but what about EU?

    Estimates in the US prices of vehicles will go up $3-5k (not necessarily TESLA) but what about other countries...
     
  2. sauce

    sauce :P

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    It all depends where Tesla is sourcing their raw materials, like aluminum and steel. If they already source in the US there would theoretically be no price increase associated to the vehicle, at least not in these early rounds of the trade war since tariffs are imposed on raw materials only.

    If their supply chain for aluminum is from Canada (which I believe is the case) they get slapped with a 10% duty/tariff charge and that may or may not reflect on final price, depending on whether Canadian suppliers discount prices or grant some back-end benefits to mitigate the effects of the additional tariffs. Also Tesla may decide as a business decision to absorb the added costs in part or even completely. Allow me to doubt this will happen. :) As for Model 3, since it is built mainly of steel, depending on its supply chain it could mean a 25% tariff on raw materials, or nothing at all, depending on its source.

    If things sour up, there has been threats that car imports to the US (finished products) would also get hit by tariffs by up to 25% as well. For Canadians this would pretty well mean the end of car exports to the US and a world of hurt for the Ontario auto industry. Canadians will obviously retaliate and if what we've seen so far warrants the future, it will be done strategically in order to hurt regions that have elected Mr. President and may represent swing votes in the future. This would logically jeopardize a lot more Michigan auto industry than California.

    Also, in a bid to improve Canada's environmental balance sheet, it is not impossible that trucks would be hit harder than less-polluting cars.

    Does this mean Tesla would be exempt from the effects of a trade war between Canada and the US? Hardly. But I expect it would not initially be the hardest hit.

    This is one side of the trade war only. There are other facets where impacts will be felt and that may hit Tesla hardest:

    If the auto industry in Canada were to be hit by tariffs, this could potentially seriously jeopardize north of 8k well-paid jobs as well as deepen Canada's global trade deficit (already deepened to $2.8B in the month of May). This will weigh on BoC's decision to increase its preferential rates and ultimately devaluate the loonie by as much as 10-15% for as long as uncertainty about trade war will last.

    This last effect will weight much more on Canadians' purchasing power than direct tariffs as it will have a broader economic impact. This will negate the capacity of many Canadians to purchase imported cars, but tourism will be affected. For an idea how this affects the US: every major city in Canada, except for Halifax and St-John's NL is connected north-south with the US, while there is one single 2-lane highway connecting Canada from east to west. This is highly indicative of the amount of money that travels southward and could be affected by a sharp devaluation. Think shopping, week-end escapades, vacationing south, east coast, west coast. As Canadians rely heavily on imports for fresh produce, food being for the most part an incompressible spending budget, the effect will be multiplied for non-essential spending, such as travelling and... gasp! car purchases, including high-end, like Tesla.

    The impacts are much more far-reaching than what is expected at first glance and will affect everyone, including those who have nothing to do with the trade war, near or close. Since the North American economy is so integrated, a tariff war has side-effects that are both far-reaching and difficult to quantify so stay posted and take good notice of what unfolds.
     
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  3. Darmie

    Darmie Supporting Member

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    There has always been trade wars. There are many terms that's used. One we tend to over look. That's Duty. We only know of it being something called Duty free when we have a personal consumption however it's all part of the so called wars. It's just media hype and conversation for the masses so to have concerns about the current headlines. Watch what's happening in the other hand while we are being fed these issues.

    One must ask, do these Tariffs actually work? I guess one could ask Harley Davidson when Honda just about put them out of business.
     
  4. namlio

    namlio Member

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    #4 namlio, Jul 6, 2018
    Last edited: Jul 6, 2018
    From what I have read, the price of steel and aluminum have increased in the US no matter its origin. When the import tariff is added/increased the domestic suppliers increase their price to just below or the same as the import price. No one will give up the added profit. Considering that many specialty metals are not made in the US, at least in large quantities, it will be interesting to watch and see if new capacity is added or if companies just pay up and increase prices on the end product.

    As others have mentioned, no one really wins a trade war, and the bigger it gets, the dumber it becomes.
     
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  5. jddssc121

    jddssc121 Member

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    *effects
     
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  6. sauce

    sauce :P

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    @f205v, Care to come out and discuss what it is you disagree with?
     
  7. f205v

    f205v Member

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    Hi sauce!
    I disagree with the first part of your post, let me quote it here:
    I'm a professional in international metals trading since more than 25 years, my family is been in the busines since mid 19th century, so I have a rather good experience (both personal and inherited from our family's business history) about what happens when obstacles to international commerce are set-up.
    It has already been well summarized by namlio a few posts above: an inneficiency(1) in a market(2) ALWAYS leads to an increased price for EVERY partecipant in the market.
    There is no excaping this fact, history is documenting it.
    So the end result of any tarif on global trade is that the final consumer of the goods will pay a little bit more, REGARDLESS of where this consumer is located. At the end of the day, a tarif on import of goods in a country is a hidden taxation on the country's citizens, unless they stop buying that specific good; but I do not see US citizens stopping their purchase of goods made of aluminim or steel in the next future: those 2 metals are too fundamentally part of our lives to be discarded or substituted in a short period of time (like a couple dozen years) so US citizen will simply pay a little more taxes (hidden!) till those tarifs will be enforced.

    Sorry if I didn't elaborate before, but my thoughts had already been explained by namlio, so I simply pressed "disagree" without further explanation.

    (1) a tariff barrier is an inneficiency to the functioning of a global market
    (2) metals trading is THE most global market that there is, very close to the perfect trade exempla you can find in any commerce/business book: it's perfectly fungible, it doesn't deteriorate over time, it's easily movable from one place to another (the full logistic chain of the World is set on moving minerals, metals and food everywhere in the world, all the rest of the goods shipped worldwhile are just a tiny fraction of the total), it can be stored indefinetively, etc.etc.
     
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  8. Sir Guacamolaf

    Sir Guacamolaf The good kind of fat

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    @f205v thanks for the well educated post.

    In a situation where we are currently,where tariffs are unequal on either side where lets say for argument's sake, Germany taxes US cars more than US taxes German cars, if the US raises tariffs to match German tariffs (reciprocal), I understand no one "wins" a trade war, but who gets hurt more? US or Germany? (Using these two as an example)
     
  9. sauce

    sauce :P

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    @f205v, Thanks for the comments. I do in general agree with your statement, in fact I have nothing much to add except to mention it has been discussed and planned that Canadian and Quebec governments (in an interventionist manner) were considering mitigating the impacts on tariffs by introducing subsidiary compensations to metal producers to offset the price of tariffs. Which would allow suppliers to (artificially) lower their prices along the supply chain (also seen in the lumber industry).

    Another possibility, somewhat more remote is a side-effect of this trade war (and it will definitely become a possibility if the war deepens and expands to tariffs on cars) would eventually devaluate Canadian currency. Of course, everything is dealt in US but a devaluation of Canadian $ is a competitive advantage that could be used to offset the effects of tariffs (has been abundantly leveraged in the lumber industry), preserve competitiveness and be used as a measure to discourage modifying the supply chain by displacing sources for aluminum and steel from one country to another. An example of markets self-correcting for inefficiencies.

    And finally, the third option to bypass a price increase (but I don't believe a 10% tariff would warrant such measures) would be to transform the metal directly in Canada or a 3rd party country (ie:stamping the metal) which would then make it exempt of tariffs, but would create such huge implications at the supply chain level as well as much more complicated transportation costs that it probably would not be worth it. I think there is a good reason why aluminum was only at 10% tariff and not more (defense contracts also have to do with it I'm sure)

    That being said, I do agree that companies won't sacrifice their benefits for the sake of expending consumers of taxes, and so the effects will be felt if Canada is indeed a supplier to Tesla for aluminum and steel.

    On the supply chain side of things, a company the size of Tesla will obviously not rely on a single source for any of their components or materials, rather have a diversity of possible sources with commercial agreements that would enable them to roll back to other sources if some situation arises with their primary source. This may have the effect of minimizing or delaying the impacts of a price increase.

    So far I am not aware of a price increase as far as Model S is concerned. This may be indicative of an efficient variety of suppliers, or just that Tesla is not yet producing on metal inventory hit by tariffs. If it is the latter, then a price increase would be in line to happen soon.

    In the big picture though, it is becoming clear that China is the main front line in this war, and Canada will serve as collateral damage. There may be pretty twisted reasons why there's friendly fire here but I'm sure strategists have figured they had more to win from hitting Canada with tariffs than not. Maybe @f205v would know more about cross-border circulation of metals than I, but Canada does have international trade deals with Europe and is a member of CPTPP, so it may be a preemptive measure to counter cross-border transit to the US.
     
  10. sauce

    sauce :P

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    From what I've heard Germany would only retaliate to the US, and not the other way around. Of course, the US being a prime market for German automakers, they would no doubt suffer a great deal from tariffs. that being said, they all have factories producing in the US, and those factories also serve for export to other markets, so it's not like the American auto industry won't suffer their own.

    In fact, this may get pretty interesting as I imagine the American auto industry won't put up with the trade war shenanigans for very long if it affects their pockets. They do have a pretty powerful lobby if memory serves me right.
     
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  11. City Racer

    City Racer Member

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    Ironically, it's looking like China will win big with this trade war. As the U.S. becomes an unstable trading partner, automakers are moving new manufacturing investments to China. We have already seen mega deals from Tesla, BMW, and Volvo. China is now positioned to become the EV manufacturing hub of the world as Trump continues to pursue coal and big oil, including asking Saudi Arabia to increase production.
     
  12. Sir Guacamolaf

    Sir Guacamolaf The good kind of fat

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    China was already positioned to become the EV manufacturing hub, just the road to the destination has changed, the destination was always the same. Tesla most likely accelerated it's plans to setup a factory there in light of the trade war. But the plan was always there.

    Reality is, we need to realize that the road to superiority is hard work, better education, and innovation. Not twiddling with interest rates, passing deficit budgets, and stemming immigration.
     
  13. whitex

    whitex Active Member

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    First, just to be clear, I am not arguing for or against recently imposed tariffs. I believe there are legitimate uses for tariffs, whether this is one of those or not is not my point here. With that out of the way, what you described above may happen, Canada may subsidize their manufacturing, however, the tariffs make it more profitable for US manufacturers to sell the same goods, therefore giving them the market advantage, therefore satisfying Trump's stated goal of the metal tariffs - to stimulate domestic metal production. If the Canadian government would like cancel out the tariff effect, they would have to give the subsidy to the US customer, "for each dollar you spend on Canadian steel, we'll cover your tariffs", which doesn't make sense for anybody.
     
  14. f205v

    f205v Member

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    Thanks everybody for your informative and thoghtfull posts.
    Just a quick comment: my above post and statements are true for commodities (aluminum or stell basically can not be substitute overnight with something else), but they are less true for more complicated goods, like cars.
    Because here you really have substitutes and also because tarifs on finished goods are directly felt by final consumers, while tarifs on commodities are felt by huge import companies and before they are transformed into finisched goods they go through many production steps, each of them usually taking on their shoulder a little bit of the tarifs (in terms of slightly reduced margins) down to a point where price for final consumers are not changed. So forseeing the effect of tarifs on finished goods in the short, medium and long term is a very difficult task, better left to echonomists and politicians.
    BTW, just to clarify my political view on tarifs: I'm personally totally against them, last time there was a huge worldwide trade war we ended up with World War II; even if (from a pure theoretical point of view) the more international commerce is complicate and inefficient, the more a trader like me can gain both from facilitating supply/demand matching and from speculating on price movements. :)
     
  15. dark cloud

    dark cloud Member

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    I had the wheels off the late 2014 model S today and saw a few "made in Canada" stickers on the aluminum suspension links. I had no idea!

    Unfortunate with all this "NAFTA was the worst deal ever signed by Americans" talk by the present president that if there is no free trade the price will assuredly go up for both Americans and Canadians by some unknown amount for futureTesla's.
     

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