How Will The Trans-Pacific Partnership Affect The Auto Industry

Summary

The U.S. charges 2.5% on auto imports and 25% on trucks.

The TPP would lower this for Japan.

The TPP would also affect Chinese and German autos.

The Trans-Pacific Partnership is a trade agreement amongst twelve countries. This is the second article that I have written on this subject. If this partnership reduces tariffs on the member countries and increases exports for certain industries, do this mean these same industries will be affected in Europe and China?

This link will take you to the previous article that I wrote. It will list the member countries and basics of the TPP. The TPP must be passed by Congress and signed into law by the President.

Currently, the U.S. imposes a 2.5% tariff on Japanese cars and 25% on trucks. This is why so many Japanese trucks are manufactured in the U.S. In 2012, Japanese companies sold 5.3 million autos in the U.S., which accounted for 40% of the industry. Under the TPP, the tariff would eventually be reduced to zero. The big three auto manufacturers are against this, as well as the United Auto Workers, as one might guess. This would be a boon for Toyota (NYSE:TM), Honda (NYSE:HMC), and Nissan (OTCPK:NSANY, OTCPK:NSANF).

The challenge for GM (NYSE:GM), Ford (NYSE:F), and Chrysler (NYSE:FCAU) is that American cars make up a small part of the Japanese auto markets. But would the entry into other member TPP countries offset this?

Only 45% of an automobile must be manufactured in a member county under the TPP. Australia has a separate trade agreement that is going into effect with Japan and Korea. It will save about $250 to $1,000 on most cars. This could be a plus for Kia (OTC:KIMTF), Mazda (OTCPK:MZDAY, OTCPK:MZDAD), and Hyundai (OTC:HYMLF, OTC:HYMTF, OTC:HYMPY, OTC:HYMPF). There is a 5% tariff on autos imported into Australia. I assume this is the same for the U.S. and this would be lowered or eliminated under TPP. Thus, this could make American autos less expensive in Australia.

The 2.5% tariff on cars and 25% on trucks is the same across the board on all autos imported into the U.S. unless there is a trade agreement in place. There is an agreement in place that only charges a 2% tariff on autos imported from the EU. Unfortunately, the EU charges a 10% on American auto imports.

It seems appears that if the TPP is passed, it would make German autos a little more expensive when compared to their Japanese counterparts. This would slightly affect Volkswagen (OTCQX:VLKAY, OTCQX:VLKAF, OTCQX:VLKPY), BMW (OTCPK:BAMXY, OTCPK:BAMXF), Audi (OTCPK:AUDVF), and Mercedes (OTCPK:DDAIF, OTCPK:DDAIY). As one might imagine, the EU is hoping to implement a similar trade agreement with the U.S.

So if China is left out of this trade deal, how would affect their auto industry? It seems that their cars would cost a little more than autos in made in the TPP. This could affect China Automotive Systems (NASDAQ:CAAS), China Auto Logistics (NASDAQ:CALI), Geely (OTCPK:GELYF, OTCPK:GELYY), BYD (OTCPK:BYDDF, OTCPK:BYDDY), Great Wall Motor (OTCPK:GWLLF, OTCPK:GWLLY), Dongfeng Motor (OTCPK:DNFGF, OTCPK:DNFGY), and Guangzhou Motor (OTC:GNZUF, OTC:GNZUY).

According to this article in the Wall Street Journal, China gives about $700 million worth of subsidies to its auto industry every year. As one can see, this puts their industry to an advantage over ours. It also is probably part of the impetus to pass the TPP. Freeze China out.

This is the second article in a series on the TPP and how it affects stocks. I am not a trade expert and every country has its own tariffs and agreements with other countries. It will be interesting to see if this gets passed and how it affects the economy.

How Will The Trans-Pacific Partnership Affect The Auto Industry