Academic journal article Current Politics and Economics of Northern and Western Asia

U.S.-Chinese Motor Vehicle Trade: Overview and Issues*

Academic journal article Current Politics and Economics of Northern and Western Asia

U.S.-Chinese Motor Vehicle Trade: Overview and Issues*

Article excerpt

INTRODUCTION

The U.S. auto industry is of interest to many in Congress because of its large employment, economic impact, and geographic reach. Around the world, there are many automakers and thousands of parts suppliers, leading to intense international competition. Through the 2009 stimulus bill1 and financial support for General Motors, Chrysler, and their suppliers, the recovery of the domestic auto industry has been made a national priority. The federal government has also provided loans and grants for electric vehicle manufacturing operations,2 research and development support for new electric, fuel cell, and natural gas vehicles, and federal tax credits for purchase of hybrid and electric vehicles.

In addition to steps supporting the domestic auto industry, Congress and the Office of the U.S. Trade Representative (USTR) have taken an interest in foreign trade and investment practices that adversely affect U.S. automakers. For example, the emergence of Japan's auto industry as a major global competitor in the 1980s and 1990s led to frequent conflict with the United States, as many U.S. policymakers argued that Japan's trade policies harmed U.S. domestic auto and auto parts producers at home and abroad.3 Trade in autos and auto parts was one of the most contentious issues in negotiating the U.S.-South Korea free trade agreement, which went into effect in 2012.4

The rapid rise of China's auto and auto parts industries in recent years has raised similar concerns and led to questions about some of the trade practices employed by the Chinese government. Some in Congress have called on the Obama Administration to take a tougher stand against China's industrial policies and other measures that may be distorting trade, including by making greater use of the World Trade Organization (WTO) dispute settlement process to challenge Chinese policies that may violate WTO rules.

This report examines the rise of China's auto and auto parts industries, Chinese government policies to promote these industries, trends in U.S.-China trade in autos and parts, auto-related trade disputes, and implications for U.S.- China commercial relations.

THE CHINESE MOTOR VEHICLE INDUSTRY

In the past five years, rising incomes and central government stimulus have made China into the world's largest auto market, in terms of both production and unit sales of vehicles.5 China's annual output of cars and light trucks increased from less than 9 million units in 2007 to more than 19 million in 2012, largely destined for domestic consumption. By comparison, in the United States, just over 10 million vehicles were produced in 2012.6

Profile of Chinese Auto Assembly

Sales are expected to continue rising, as China's ownership rate of 58 motor vehicles per 1,000 people is half the global average of 175 per 1,000 people7 and well below the U.S. rate of 797 per 1,000 people. A major project under way to build a network similar to the U.S. Interstate Highway system may also support sales growth. It has been forecast that as many as 30 million vehicles will be sold annually in China by 2020, with most of them being produced there.8 Chinese production capacity is expanding even faster than demand, resulting in a drop in average vehicle prices at a time when personal income is on the rise.

The transformation of China's auto industry has been a central government goal since the 1980s, when American Motors Corp.9 signed the first joint venture agreement to produce Jeeps in China.10 At that time, there were a large number of local Chinese automakers, but the government reasoned that its domestic manufacturers would not reach higher quality, technology, and management standards without assistance from foreign automakers. Foreign automakers were allowed to produce vehicles in China, but only through joint ventures in which local partners have at least 50% control. Some of these partners are controlled by local or provincial governments. …

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