Introduction
China’s economic growth in the past twenty years has been of interest to many countries and companies. Nowadays, numerous economic players prefer China as a business partner and place for their factories. Such changes in the global economy attracted the United States’ attention, which declared a trade war on China. It is necessary to analyze Chinese state-owned and Western private companies’ cooperation to anticipate the possible consequences of this confrontation. The aim of this essay is to answer several questions regarding different aspects of the economic relationship between General Motors (GM) and China’s SAIC Motors.
The Long-Term Prospects for the Chinese Market
The closure of three assembly plants by GM results from low demand for passenger cars in the domestic sector. It can also be said that it is another episode of the trade war between the Chinese and the United States governments. These events raise the question of how GM’s China-oriented production policy and the tariff war will affect the Chinese market in the long term. According to Li, He, and Lin (2018), “… trade war with the US will hurt China, but cannot hurt China deeply, the negative impacts are affordable” (p. 1575). Moreover, it is possible that the Chinese Government will provide additional subsidies for local manufacturers with which GM is currently cooperating (Lau, 2019). It is worth mentioning that “the Chinese Government is expected to implement cuts in its tax rates…” (Lau, 2019, p. 29). The Chinese market will experience some minor losses but will continue to grow at a significant pace.
GM Factories in China and Reasons to Stay
Not only does it make sense for GM to continue making cars in China, but also it is economically beneficial in the longer term. As mentioned above, GM’s partnership with SAIC Motor opens up access for GM to public investment and subsidies (Lau, 2019). The collaboration also allows GM to compete effectively with local automakers who are major players in the Chinese market (Ou et al., 2019). It is worth noting that a China-oriented manufacturing policy enables GM to avoid high economic costs that could be caused by Chinese and US tariffs. Car manufacturing in China will also give the opportunity to GM to catch up on local electric vehicle trends such as the current demand for small plug-in electric vehicles (PEVs) and the possible future demand for large-size PEVs (Ou et al., 2019). It is worth mentioning that China’s economic sector is the largest and fastest-growing automobile market globally.
Potential Prospects and Consequences of Another GM Export Policy
If GM had pursued a trade policy of exporting cars from the domestic area to China, it would have faced several problems. One of them is the forty percent tariff set by the Chinese Government. The high trade costs would cause price cuts for GM vehicles and reduce the manufacturer’s profits. That is to say, GM would have met the same fate as Tesla. However, there are several positive outcomes for such a theoretical chain of events. The US government would not have canceled public subsidies for GM, and the company would have had to keep three assembly plants. GM would have lost much more than it gained if it decided to export products from the United States to China.
GM and SAIC Motor Cooperation Reasons, Benefits and Downside
One of the key reasons for the cooperation of GM and SAIC Motor may be to understand the demand patterns of local consumers. It may be very beneficial when the manufacturer has almost direct access to the necessary economic and social data that the public partner can provide. Other positive aspects of this partnership are GM’s strong position in the Chinese market, as well as a preferential position in relation to the Chinese Government (Lau, 2019). The downside is that GM is obligated to share profits with SAIC Motor. Another potential disadvantage is that GM may have to provide confidential information such as new technologies and vehicle designs to the public partner.
Benefits and Costs of Import Tariffs
Import tariffs as a measure of trade policy can serve many economic and political purposes. One of them is to attract the attention of transnational corporations. Governments can use import tariffs to force companies to relocate production to their country, which will positively affect the country’s economy. Import tariffs can also serve as a protective measure for domestic private and public market players. The negative aspects are consumers’ social dissatisfaction and disapproval that may come from domestic companies that cooperate with foreign partners.
Conclusion
The paper examines aspects of the trade war, such as import tariffs, production relocation, and the consequences of its closing in the domestic area. The author answered a number of questions regarding the long-term prospects for the Chinese market, as well as GM factories in China, potential consequences of the company’s other export policy, and its cooperation with SAIC Motor. It is worth noting that three scholarly sources support this work.
References
Lau, L. J. (2019). The China–US trade war and future economic relations.China and the World, 2(02), 1-32. Web.
Li, C., He, C., & Lin, C. (2018). Economic impacts of the possible China–US trade war. Emerging Markets Finance and Trade, 54(7), 1557-1577. Web.
Ou, S., Hao, X., Lin, Z., Wang, H., Bouchard, J., He, X.,… & Qi, L. (2019). Light-duty plug-in electric vehicles in China: An overview on the market and its comparisons to the United States.Renewable and Sustainable Energy Reviews, 112, 747-761. Web.