China-US Trade War: US Auto Sector Braces for China Tariff Fallout as EV Rivals Surge

US Recession Risks Put China Tariffs in Focus

On March 10, escalating US recession fears triggered a flight to safety, leaving US equity markets with heavy losses. President Trump’s tariff policies have heightened recession risks, with Kalshi putting the odds of a 2025 recession at 40%, up from 17% in January.

President Trump did not dismiss the possibility of a tariff-triggered US recession on March 9, fueling Monday’s market sell-off. In contrast, Beijing set a 2025 growth forecast of around 5% and an inflation target of 2%, factoring in stimulus measures to boost domestic consumption, a countermeasure to US tariffs.

A pickup in China’s economy may lift demand for US goods. However, an escalating US-China trade war could push Chinese consumers toward domestic brands. During Trump’s first term as President, the US-China trade war led to a nationalistic response, particularly in sectors like smartphones.

Mounting recession risks could pressure the US administration to ease trade tensions with China to prevent retaliatory consumer boycotts. The latest shift in sentiment toward the US economy may pressure Washington into making concessions in future tariff talks, potentially giving Beijing an advantage.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented on the potential for diplomatic engagement:

“Given the stock market collapse in the US thanks to Trump admitting the possibility of recession and Tesla’s huge correction, Trump and Musk might be thinking that the only way out is a deal with China. A visit to Beijing is in the air…”

US Auto Manufacturers Face Tariff-Driven Headwinds

Beyond the smartphone sector, US automakers could face challenges from shifting Chinese consumer preferences. General Motors (GM) relies heavily on the Chinese market. China has become one of Tesla’s (TSLA) largest markets and a crucial export hub, while Ford (F) considers China a critical growth market.

Since Trump’s first term, Chinese automakers have made significant advancements, benefiting from surging EV demand. Leading players, including BYD (HK.1211), NIO (HK.9866), and Li Auto (HK.2015), have become viable competitors to Tesla and other US automakers. This evolution could pressure the US administration to seal a deal with China.

Beijing’s stimulus measures, aimed at boosting domestic consumption, position China as a key market for US automakers, particularly if the US enters a recession. The US auto sector contributes 3-5% to US GDP and directly or indirectly employs around 5 million workers.

On March 9, the Kobeissi Letter highlighted the darkening clouds for the US auto sector:

“The share of subprime car borrowers at least 60 days past due on their loans hit 6.6% in January, the highest in at least 30 years. […]. Levels now exceed levels seen in 2020, 2008, and the previous peak recorded in 1996.

Considering the dynamics, the US administration may face challenging trade talks. China’s foreign minister recently said that if the US insists on waging a trade or tariff war, China will see it through to the end.

China’s Transition to a Consumer-Driven Economy and US Goods

Last week, Beijing released its 2025 Work Report, outlining economic targets and pledging monetary and fiscal policy support. These measures are part of China’s bigger goal of transitioning from an export-reliant to a consumption-led economy. While this reduces China’s dependence on overseas demand, domestic consumption could boost demand for national and international brands, affecting US businesses reliant on Chinese consumers.

For the US auto sector—a key indicator of broader labor market trends—China’s evolving economic policies could be crucial.

Market Moves: Hang Seng Index and Mainland Markets Face Modest Losses

Despite Monday’s US market sell-off, Hong Kong and Mainland China-listed stocks posted modest losses on Tuesday, March 11.

The Hang Seng Index fell 0.34%, while the Mainland’s CSI 300 and Shanghai Composite Index dropped 0.41% and 0.32%, respectively. Meanwhile, the buying frenzy for tech stocks continued, with the Hang Seng Tech Index up 0.89%.

Hong Kong-listed auto stocks Li Auto and BYD saw further gains on March 11, giving year-to-date gains of 19% and 31%, respectively. In contrast, General Motors was down 9.74% year-to-date, with Tesla tumbling 45%.

What’s Next? More Tariffs Trade Talks

Tit-for-tat tariffs could further weigh on investor sentiment. However, Beijing’s monetary and stimulus policies may mitigate tariff concerns, supporting demand for Hong Kong and Mainland China-listed stocks.

As US recession risks intensify, updates from the penultimate day of the third session of the 14th National People’s Congress will draw interest. Further policy pledges could boost demand for HK and Mainland China stocks on a potential US-China economic decoupling.

Stay ahead of market trends—explore our in-depth analysis of China’s economy and global markets here.