Mar 14, 2017

Ford to avoid a 25% tariff with Chinese factory

Ford's luxury Lincoln brand plans to ramp up its sales in China, revealing plans Monday to produce a new luxury SUV in China by 2019, to capitalize on booming demand there.

Unfair trade: Foreign car makers face a 25% tariff before they can sell their cars in China, making it difficult for exporters to compete with companies that produce within the country's borders. Furthermore, a U.S. company can't build factories in China without a joint-venture partner—Ford will build its new vehicle in concert with state-owned Changan Automobile. Ron Harbour, an autos consultant with Oliver Wyman, points out that GM's China-made Buick Envision, for instance, only faces a 2.5% tariff before hitting the American market and no joint-venture requirements. "Does that sound like fair trade to you?" he asks.

Why it matters: Ford says the decision shouldn't have domestic political implications, as the brand will only be sold in China. But if China were more open to foreign trade, it wouldn't be necessary for Ford to risk investment there, and it's possible that rising Chinese demand could be counted on for more American jobs.

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