It looks like Elon Musk taking Donald Trump to task on US-China car trade is starting to backfire as the Chinese government adds electric vehicles to the list of products that will be slapped with new tariffs.

As a result, US auto stocks are falling this morning with Tesla leading the pack with the biggest tumble due to its lack of manufacturing in China and its current total reliance on imports.

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China’s move comes just two days after the Trump administration released its own plan to impose tariffs on $50-billion in Chinese goods, including cars, after starting a trade war rhetoric between the two countries over the last few months.

The Trump administration’s initiative came after Tesla CEO Elon Musk raised the issue of US-China automotive import and export with President Donald Trump in a series of tweets.

He informed him of Tesla’s issues with being faced with a 25% import tariff and China’s strong protectionist laws that prohibit foreign automakers to own over 50% of local manufacturing facilities.

Due to his inquiries on Twitter, Trump said that Musk agreed with him on a tough stance against China’s tariffs – though Musk said that he was “against import duties in general” and he was looking for more “equally moderate” rules.

Now it seems to have backfired as the situation is quite evidently escalating with today’s announcement of new tariffs on electric cars.

The market is reacting strongly when it comes to Tesla, with its stock dropping as much as 5% in pre-market and now back to a more reasonable 2% down.

Update: Tesla’s stock has since quickly recovered from the selloff this morning.

It is seen as a bigger issue for Tesla since unlike most other American automakers, it doesn’t have manufacturing capacity in China – though the company confirmed last year that it is working with the Shanghai government to establish a manufacturing facility in the region.

What is still unclear is how the situation would change for Tesla since it is already being slapped with a 25% tariff for its imports and the new monetary value of the new tariffs hasn’t been confirmed yet.

Despite the current 25% import tariff, the California-based automaker has been doing well in China where it doubled its sales to over $2 billion last year. They by far lead foreign electric car sales in the country.

Electrek’s Take

I think this is about both sides trying to do a show of force ahead of what should hopefully lead to actual negotiation.

The new US tariffs were capped at 25% and China already had 25%, so I’m really not sure how any update here will impact Tesla in any way. I wouldn’t be surprised if it doesn’t change anything for them.

Update: sure enough, Tesla’s stock has since quickly recovered from the selloff this morning.

Aside from Tesla, China has already been extremely successful in convincing US automakers to establish manufacturing capacity in China and now I think they would like to export cars to the US with several startups like NIO, and established companies like BYD and Volvo, which should give some room for negotiation with the US for a more fair trade deal.

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