Tesla Hiked Prices as US Raises Stakes in China Trade War

By Joyce Yu

Philadelphia, PA–Global stocks slump on Wednesday after White House announced a list of tariffs on $200 billion in Chinese goods. China said it was “shocked” and would complain to the World Trade Organisation, but did not immediately say how it would retaliate.

The list included hundreds of food products as well as tobacco, coal, chemicals and tires, dog and cat food, and consumer electronics including television components. U.S. tariffs on $34 billion worth of Chinese goods took effect just last Friday, and China immediately levied retaliatory tariffs on the U.S. President Donald Trump has said he may ultimately impose tariffs on more than $500 billion worth of Chinese goods.

The latest action drew criticism from some business groups because in a trade war, ultimately consumers and business are the ones being punished. Chinese Tesla fans will first feel the pain as U.S. carmaker Tesla announced to increase prices on its Model X and S cars by about 20% in China in response to deepening trade tensions between the countries. Market watchers expect more automakers likely to follow suit.

China which accounts 17% of Tesla’s revenue last year is key to the electric carmaker which is rapidly burning cash and struggling to turn a profit. Tesla just cut price for its Model X in China in May after Beijing said it would cut import tariffs to 15% from 25% for most vehicles from July 1. But the latest retaliatory tariffs mean importers will have to fork out a total 40% duty on all U.S.-made cars they sell in China.

As well as the price hike, Tesla also struck a deal with Chinese authorities to build a new auto plant in Shanghai, its first factory outside the United States. Commencing production in two years’ time, the Shanghai factory, which plans to produce as many as 500,000 vehicles a year about two to three years later, is expected to double the size of the electric car maker’s global manufacturing.

Tesla’s announcement coincides with a culmination of months of trade frictions between the US and China, even though Tesla CEO Elon Musk was talking about building a Chinese factory long before the Trump administration proposed punitive tariffs on Chinese goods. “The Shanghai plant will certainly improve Tesla’s positioning in China and allow it to locally produce and avoid import tariffs,” Tasha Keeney, an analyst with ARK Invest, told Reuters.

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