Trump was right that GM had made a major bet on China. GM has been operating in China since 1997 when it established a joint venture with SAIC Motor, a Chinese state-owned automotive design and manufacturing company.
GM has a 50 percent ownership stake in the joint venture, which is known as SAIC-GM. In 2018, GM and its joint venture partner built and sold some 3.64 million vehicles in China, up from 1.2 million in 2011 and 0.4 million in 2006.
By comparison, in 2018 GM sold 2.95 million vehicles in the United States. China is now the world’s largest automobile market. It’s been the largest market for GM since 2012. Despite the size of the Chinese market, there is still lots of room for growth. There are around 173 vehicles per capita in China, compared to 833 per capita in the United States.
GM sells models in China under the Chevrolet, Buick, GMC, Cadillac, Holden, Baojun, Wuling, and Jiefang brands. GM exports almost nothing from the U.S. to China, although it does export one China-built model, the Buick Envision, to the American market. GM says it cannot build the Buick Envision economically in the U.S., because the Chinese market accounts for 80 percent of the model’s global sales.
Like many automakers, GM believes it needs factories close to its customers in order to reduce supply chain costs and design vehicles that best suit local market demands. GM also wants to be in China because the country is leading the shift away from gasoline engines toward battery-powered electric motors. Sales of electric vehicles in China are four times higher than in the United States and growing faster. To foster the growth in electric vehicle production, China has been providing generous subsidies to local producers (including SAIC-GM) and consumers. GM has pledged to invest heavily in electric vehicles and plans to launch 20 electric models in China by 2023.
In addition, there have long been tariffs on imports of motor vehicles into China. Local production avoids these. In 2018, China increased tariffs on imports of American made cars into China from 15 percent to 40 percent in retaliation for wide-ranging tariffs Trump had placed on imports of Chinese products into the United States.
These tariff increases had little impact on GM, which produced all of its Chinese sales locally. However, they did impact another American manufacturer, Tesla, which had been doing what Trump wanted GM to do: export production from the United States to China. Tesla’s Chinese sales fell in half in the months after the tariffs were raised. In response, Tesla slashed prices in China and stated it would accelerate plans to build production facilities there, opening a factory in 2021 or 2022.

1. What are the long-term prospects for the Chinese market?
2. Does it make sense for GM to produce automobiles for the Chinese market in China? Why?

3. What do you think would happen if GM tried to serve the Chinese market by exporting production from the United States?
4. Why do you think GM went into partnership with a state-owned company to produce automobiles in China? What are the possible benefits of such a venture? What might be the downside?
5. What does this case teach you about benefits and costs of import tariffs?