Why Japan, South Korea, and Germany are likely ecstatic right now.
President Donald Trump and members of his administration are quite excited about Saturday’s handshake deal between the US and China.
They claim Beijing agreed to lower tariffs on American cars entering the Chinese market from 40 percent to zero. And even though China hasn’t confirmed this detail, it sounds like good news, as lower tariffs would greatly reduce the price of US vehicles, perhaps making them more attractive to China’s billion-plus consumers.
The problem is that this so-called concession is not the big deal the administration is making it out to be, and it could lead to greater frustration between the two countries down the line.
First, if China did agree to lower tariffs on American cars, other countries with competitive automotive sectors would likely benefit more than the US.
Here’s why: Trade between the US and China is governed by the rules of the World Trade Organization (WTO), a global body that ensures countries trade fairly with one another. One of the biggest rules, the WTO says, is that “countries cannot normally discriminate between their trading partners.” This is known as the “most favored nation” principle: A country can’t give a special perk to just one nation; it must offer it to all of them.
Scott Olson/Getty Images Ford Explorers leave Ford’s Chicago Assembly Plant on October 18, 2017, in Chicago, Illinois.
In other words, if Beijing lowers the tariff rate on US autos to zero, it must also do that for all other countries that want to sell their vehicles in the Chinese market. That still may increase the number of American cars sold in China, but other