Trade War – will US companies in China take the Ford or Tesla approach?

There’s little incentive for consumers in China to pay extra for a Tesla. Photo credit – Pixabay

We’ve described Donald Trump’s nascent trade war with China as being ‘a war with no winners, and no good reason’

Whilst it’s fair to say that there will be no winners, it’s important to note that resultant tariffs could prove to be very costly to both Chinese and American companies.

Over the last week, two distinct responses to these tariffs emerged amongst American auto firms operating in China – the world’s most important car market.

The first was revealed by Ford, who plan to absorb the cost of increased tariffs in China.

The move means that Ford cars won’t cost any more money for Chinese consumers – however, it will also mean that the manufacturer will have to lower profit margins or even make a loss in the key market.

This week, Tesla announced an alternative approach.

They’re planning to increase the cost of cars in China, by as much as $20,000 a piece, to offset the tariffs. What this saves them in cash will surely cost them in sales.

At a time when Chinese designed electric cars are at the cutting-edge of technology and in unprecedented international demand, the company might well find that there’s little incentive for consumers in China to pay extra for a Tesla.

The fear amongst the multitude of American companies operating in China who will be impacted by Donald Trump’s trade war will be that, whether they take the Ford approach or the Tesla approach, it will ultimately cost them one way or the other.