China Auto Market Price War Stokes Fears of Industry Shake-out

China–U.S. Trade War

Stocks

Summary:

The market has grown crowded with cut-throat price competition and most companies sustaining heavy losses.

An intensifying auto industry price war in China has stoked fears of a long-anticipated shake-out in the world’s largest car market.

Shares of China’s largest automakers sank Monday after Chinese electric-vehicle giant BYD offered fresh discounts across more than a dozen models, and an executive at another car company fretted openly about the country’s deepening price war. BYD’s moves cut the starting price of its cheapest model, the battery-powered Seagull hatchback, to 55,800 yuan ($7,765), from nearly $10,000.

The BYD price cuts, along with other developments, signal a potential tipping point, where weaker players can no longer sustain deepening losses from the downward spiral on prices, said Tu Le, managing director of Sino Auto Insights, an advisory firm.

“This points to a bloodbath later this year,” he said. “This could be the first domino that would finally put pressure on weaker players -- startups like Neta and Polestar -- that have been teetering.”

On Friday, the chairman of Great Wall Motors, Wei Jianjun, warned that China’s auto sector was in an unhealthy state, with pricing pressure hammering the bottom lines of car companies and suppliers. He even drew a parallel to Evergrande, the Chinese property developer that was liquidated last year after a major debt crisis.

"Now, Evergrande in the automobile industry already exists, but it has not collapsed," he told Sina Finance in an interview.

In another sign of stress in the market, Reuters reported that Chinese commerce regulators are examining a growing phenomenon that has also strained the industry: sales of “used cars” that are essentially new cars with zero miles. The tactic is seen as a way for automakers and dealers to hit aggressive sales targets, a person familiar with the matter told Reuters.

The Hong Kong-listed shares of BYD Co Ltd closed 8.6% lower on Monday, while Geely Auto <0175.HK> fell 9.5%. Others, such as Nio (9866.HK) and Leapmotor (9863.HK), closed between 3% and 8.5% lower.

A slew of startup companies have piled into China’s car market over the past decade, drawn by the burgeoning electric-vehicle sector. The market has grown crowded with cut-throat price competition and most companies sustaining heavy losses.

Of the 169 automakers operating in China today, more than half have less than 0.1% market share, according to data from research firm Jato Dynamics. The crowded field is reminiscent of the U.S. auto sector in the early 20th century, when more than 100 companies vied with big players such as Ford, before the industry consolidated.

Le said the price war has lasted roughly three years. Car makers once enjoyed a premium for advanced features such as driver-assistance systems that take control of steering and braking in certain situations, but now more have been offering these as part of the sticker price.

Last week, China's state planner cautioned that competition in some industries was getting too heated, with some companies even selling their cars below cost, disrupting fair competition.

On Friday, Wei, the Great Wall <601633.SS> chairman, warned the prolonged price war was harming the automotive supply chain. Some suppliers are at risk of going under because of pressure from car companies to lower their prices, he said.

"Some products have been reduced from 220,000 yuan to 120,000 yuan in the past few years,” he said, without naming companies. “What kind of industrial products can be reduced by 100,000 yuan and still have quality assurance?”

Still, predictions of consolidation in China’s car market have gone on for years, but the field has only grown, said Michael Dunne, a consultant who closely follows the China auto industry.

“BYD's price cuts will drive out some of the weaker players,” he said. “But for every casualty here comes a new Xiaomi or Huawei barreling into the arena."

Source: Reuters

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Manuel

Bond

Forex

The dollar strengthened on Tuesday as the yen came under pressure from a sharp fall in Japan's long-dated bond yields, while the greenback was boosted by data improving U.S. consumer confidence.

"It's very much being driven by global bond markets, and most recently what we've seen in Japan," said Eric Theoret, FX strategist at Scotiabank in Toronto. "Market participants are reading into the fact that the Ministry of Finance sent out a questionnaire to their primary dealers about issuance."

Bloomberg reported on Tuesday that the Japanese Ministry of Finance sent a questionnaire to market participants regarding issuance and current market issues. Japan will consider trimming issuance of super-long bonds in the wake of recent sharp rises in yields for the notes, two sources told Reuters on Tuesday.

The plan comes amid a recent spike in super-long bond yields to record levels due to dwindling demand from traditional buyers such as life insurers and global market jitters over steadily rising debt levels.

The dollar was last up 1% at 144.28 Japanese yen . The euro fell 0.46% to $1.1335.

The greenback added to gains after data showed U.S. consumer confidence in May was much better than economists had expected.

Data this week will include personal consumption expenditures for April, the Federal Reserve's preferred inflation measure, on Friday.

Minneapolis Fed President Neel Kashkari on Tuesday called for keeping interest rates steady until there is more clarity on how higher tariffs affect inflation, warning against "looking through" the impact of such supply price shocks.

The euro, meanwhile, was dented by data showing that French inflation fell to its lowest level since December 2020 in May.

U.S. President Donald Trump on Sunday dropped his threat to impose 50% tariffs on European Union imports from next month, which boosted risk appetite on Tuesday.

European Union policymakers have asked the EU's leading companies and CEOs to swiftly provide detail of their U.S. investment plans, according to two sources familiar with the matter, as Brussels prepares for trade talks with Washington.

Investors are concerned that tariffs will hurt growth and potentially reignite inflation, though traders have become less pessimistic on the U.S. economic outlook since the United States and China earlier this month reached a deal to slash tariffs they had imposed on each other.

Longer-term, the more protectionist stance of the United States is expected to continue to hurt the greenback.

"We're still in an environment of medium to longer term U.S. dollar weakness," said Theoret.

European Central Bank President Christine Lagarde said on Monday that the euro could become a viable alternative to the dollar if governments could only strengthen the bloc's financial and security architecture.

Investors are also watching the passage of a spending and tax bill through the U.S. Congress that is expected to add trillions of dollars of debt.

"Our first take on the House budget is it's not too bad, but could be better. It will reduce the deficit-to-GDP ratio, though probably not enough to put the budget on a sustainable path," Chris Low, chief economist at FHN Financial said in a note.

Low noted, however, that "no one is happy" with the bill, with right-wing commentators upset that it didn't further DOGE spending cuts, while left wing pundits are mainly opposed to the size of cuts to social spending.

U.S. Senate Republicans said on Thursday they will seek substantial changes to the spending bill after it narrowly won approval in the House of Representatives.

Elsewhere the dollar strengthened 0.77% to 0.827 Swiss franc.

Source: Reuters

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Manuel

Bond

Forex

Dip buyers in the dangerous world of long-dated Treasury debt are enjoying a rare pay day — and fast.

Investors over the past week poured $1.8 billion into BlackRock Inc.’s iShares 20+ Year Treasury Bond ETF (ticker TLT) — the most among all the 630 ETFs that Bloomberg tracks — just as longer-maturity government bonds sold off on fears over America’s debt trajectory.

The timing has proved fortuitous. In Tuesday trading, Treasuries rallied — pushing the 30-year yield below 5% — on optimism about trade negotiations between the US and the European Union, and as Japan signaled it may adjust debt sales to stabilize its bond market. TLT jumped 1.7% during the session, on track for its biggest daily rise since February.

It’s a rare win for an ETF trade that has earned a reputation as a so-called widow maker. True to its infamy, TLT has attracted some $49 billion in the past five years despite shedding more than 40% in that time horizon.

“Investors aren’t letting TLT’s widow-maker reputation scare them off,” said Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence. “They’re still buying in, holding on to hope that long-term Treasuries will finally bounce back.”

For some time, bond investors have been demanding extra compensation for the risk of investing in longer-duration debt as Republican lawmakers haggled over President Donald Trump’s signature tax-cut bill that would add trillions of dollars to already bulging budget gaps. Benchmark 30-year Treasury bonds surged above 5.1% last week to trade near the highest in almost two decades.

But last week’s buying streak in TLT suggests that a growing cohort of traders are betting that yields are high enough to entice buyers and compensate for the risks. Long-maturity bonds are most exposed to interest-rate risk, so they tend to rally the most when borrowing costs fall.

“Dip-buyers are trying to pick the bottom,” and long-term bonds give investors “the biggest bang for your buck” because they are exposed to the most volatile part of the yield curve, said Byron Anderson, head of fixed income at Laffer Tengler Investments Inc. "Widow Maker" Bond-ETF Trade Delivers Fast Gains for Dip-Buyers_1

"Widow Maker" Bond-ETF Trade Delivers Fast Gains for Dip-Buyers_1

The iShares 10-20 Year Treasury Bond ETF (TLH) was also among the ETFs that attracted the most inflows over the past week, along with the iShares 0-3 Month Treasury Bond ETF (SGOV).

Peter Tchir of Academy Securities is among those recommending long-bonds, saying the pessimism is overdone. Adding heft to his belief is the rally in global bonds after Japanese authorities signaled they are considering adjusting their debt plan.

“The situation wasn’t as bad as the narrative,” said Tchir who recommended investors add duration last week. “Positioning had swung from too bullish to too bearish fairly quickly, too.”

Of course, TLT — which is almost as volatile as US stocks — isn’t for faint hearts. In the options market, traders remain wary of further declines in long bonds. It costs more to buy put options in TLT than to purchase calls, a sign there is demand for downside protection.

“We believe the long end will continue to see term premium increase,” said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. “It’s all about the fiscal, what is the right level to lend at to countries whose balance sheets are trending the way they are.”

Source: Bloomberg

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Manuel

Commodity

Middle East Situation

Oil prices fell more than 1% on Tuesday, spurred by worries of a supply glut after Iranian and U.S. delegations made progress in their talks and on expectations that OPEC+ will decide to increase output at a meeting this week.

Brent crude futures were down 90 cents, or 1.4%, at $63.86 a barrel by 1:25 p.m. ET (1725 GMT). U.S. West Texas Intermediate crude fell 90 cents, or around 1.5%, to $60.63 a barrel.

The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, is not expected to change policy at a meeting on Wednesday.

However, another meeting on Saturday is likely to agree to a further accelerated oil output hike for July, three delegates from the group told Reuters.

Meanwhile, Iranian and U.S. delegations wrapped up a fifth round of talks in Rome last week. While signs of limited progress emerged, there were many points of disagreement that were hard to breach, notably the issue of Iran's uranium enrichment.

"OPEC+ also meets next week where they will likely agree on further output increases, which, if it occurs, will be a major near-term headwind for crude, especially if Iran adds barrels in the possible (U.S.) deal," said Dennis Kissler, senior vice president of trading at BOK Financial.

If nuclear talks between the U.S. and Iran fail, it could mean continued sanctions on Iran, which would limit Iranian oil supply, while any resolution could add Iranian supply to the market.

Supporting prices, U.S. President Donald Trump's decision to extend trade talks with the European Union until July 9 alleviated immediate fears of tariffs that could suppress fuel demand. Wall Street rose on Trump's trade reprieve.

Easing trade concerns were supportive, said UBS analyst Giovanni Staunovo, adding that upside to prices remains limited until it is clear what OPEC+ will decide on Saturday.

Also helping prices, a wildfire in the Canadian province of Alberta prompted the temporary shutdown of some oil and gas production.

Source: Reuters

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Owen Li

Economic

Just when the calm of Ramadan had settled in, U.S. President Donald Trump dropped the bombshell: “reciprocal” import tariffs that cut short everyone’s well-earned break and threatened to upend global trade with staggering losses.

The Tax Foundation summarized the reason for the reciprocal tariffs on imported goods at the U.S. Congress Joint Economic Committee Hearing on December 18, 2024: the relative decline in competitiveness of U.S. industries compared to other nations, widening inequality, insufficient job creation, and other domestic economic issues. These concerns have driven a high-risk protectionist practice that may ultimately harm all parties involved.

The trade-balance deficit with various partners is not sufficient justification for raising trade barriers. Researchers conclude that permanent import tariffs have only a modest impact on reducing trade deficits at best and suggest temporary tariffs can trigger a recession, an effect that deepens if trading partners retaliate.

Although Trump’s 90-day postponement of the reciprocal tariffs (though not a 10 percent baseline tariff) is encouraging, uncertainty persists due to the unpredictability of Trump’s directives and his questionable judgment. MacroMicro’s Trade Policy Uncertainty Index in April rose to nearly ten times its level from last September, underscoring the growing need for negotiation strategies to ensure trade stability.

There are indications that this tariff scheme was premeditated by the administration, given that the 10 percent rate far exceeds the prior average tariff of 2 to 3 percent. Trump has achieved his objectives, apart from China, which has resisted pressure and compelled him to relent amid potential economic consequences – yet he framed the outcome as a victory.

In this context, the current tariff war more closely resembles Trump’s first administration policies with elevated duties that provoke retaliation and serve as bargaining chips in negotiations, now applied to a wider array of countries.

What We Learned from Tariff War 1.0

During Trump’s previous term, the United States steadily increased its import tariffs on Chinese goods from around 3 percent in January 2018 to almost 20 percent by February 2020, while tariffs on the rest of the world rose only modestly from 2 to 3 percent.

Despite these levies, the U.S. trade-balance deficit with both China and the rest of the world failed to shrink. Two key factors drove this: China sidestepped U.S. tariffs by rerouting exports through third countries such as Mexico and ASEAN nations, and U.S. domestic industries could not fully substitute for imports. Instead, import barriers disrupted production and stoked inflation.

Despite not being as successful as fellow ASEAN countries such as Vietnam, Indonesian products supplanted Chinese goods in the U.S. market and export-oriented Chinese foreign direct investment (FDI) flowed into Indonesia. Moreover, Indonesia accelerated the signing of bilateral and regional trade agreements such as ASEAN Plus Three and Regional Comprehensive Economic Partnership (RCEP) to diversify its export destinations and bolster supply-chain resilience.

On reflection, there might be a chance for Indonesia to convert this disaster into an opportunity. But is it?

Tariff War 2.0

Learning from the limited impact of Phase One, this second salvo imposes extremely high rates on a vast array of trading partners simultaneously, an all-out effort to squeeze global imports.

The mechanics of fallout are straightforward. First, exports from nearly every country to the U.S. will contract. Next, China’s persistent overcapacity is likely to flood global markets, including Indonesia, with surplus goods. U.S. investors, deterred by harsher trading conditions abroad, will redirect capital back home, while rest-of-world investors chase lower-tariff jurisdictions.

China may shift more FDI toward Indonesia’s domestic market, but export-driven projects will wane. Major industrial powers could resort to dumping surpluses at cut-rate prices, and if large economies retaliate in kind, global trade volumes may plunge further, dragging down growth worldwide.

For Indonesia, the consequences are immediate and stark. The previous influx of export-oriented Chinese investment may slow while the domestic market is still uncertain. Indonesia can strengthen its trade defense and remedies in anticipation of the surge of dumping and illegal imports.

It is unclear how U.S. tariffs on Chinese and Indonesian products will differ beyond the 90-day postponement and if Indonesia still holds the competitive advantage it once enjoyed. It is also unclear whether Indonesia can rely on substituting Chinese goods in the U.S. market. In response, Indonesia must brace for a drop in U.S.-bound exports of key products due to hefty reciprocal duties and prepare for higher global production costs.

Although the outlook is bleak, there are still windows of opportunity. Exports to the U.S. account for less than 10 percent of Indonesia’s total shipments, lower than most of its ASEAN peers, hence offering greater flexibility to diversify Indonesia’s markets.

What Can Be Done

Indonesia can proactively pursue bilateral negotiations with the United States, mirroring moves by other ASEAN members while refraining from retaliation.

To make a difference, Indonesia may consider initiating preferential trade agreements or bilateral limited free trade agreements with the U.S. Indonesia can also leverage its status under the U.S. Generalized System of Preferences to seek a limited preferential/free trade agreement.

Contrary to U.S. assertions, Indonesia’s average Most Favored Nation tariffs in 2023 were moderate and applied uniformly at around 8 percent. Notably, the United States enjoyed a services-trade surplus of $1.6 billion in 2023 despite a goods-trade deficit, underscoring mutual benefits that should guide bilateral negotiations.

At the same time, the Indonesian government must reassess its own non-tariff measures, since U.S. sanctions have cited both Indonesia’s import duties and regulatory barriers. Moderating these policies with prudent review will help improve American perceptions while simultaneously addressing asymmetric liberalization effects.

In the short term, Indonesia can step in to supply goods that complement exports from heavily tariffed nations, capturing new opportunities in global supply chains.

To diversify risk, Indonesia can deepen production partnerships over the long term by attracting FDI into intermediate-goods manufacturing with countries facing lower U.S. tariffs such as Japan and expand its diplomatic outreach by accelerating cooperation frameworks including BRICS and OECD accession among others.

Internally, sweeping reforms to enhance the business climate, raising productivity and lowering high-cost economic structures are essential, as is an active role in World Trade Organization reform to revitalize multilateral trade.

Upgrading logistics and industrial infrastructure can target broad competitiveness rather than aligning with any single foreign investor’s supply chain and ensure that any re-export of foreign-origin goods satisfies Rules of Origin requirements with substantial value additions compared to mere goods in transit. Stronger enforcement against illegal imports and more robust anti-dumping measures will protect domestic industries from unfair competition.

By maintaining an independent foreign policy, Indonesia can preserve diplomatic flexibility and preparing for non-economic conditions such as domestic politics, foreign policy and defense commitments will round out its readiness.

Negotiations are still underway, but rising tensions and disputes over key issues could drive tariffs even higher. No one knows exactly what the Trump administration has in mind. As Bob Dylan famously said, the times they are a-changin’. One can remain hopeful and act on what we can control.

Source: The Diplomat

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Olivia Brooks

Economic

US President Donald Trump and First Lady Melania Trump are greeted by California Governor Gavin Newson upon arrival at Los Angeles International Airport in Los Angeles, California, on Jan. 24, 2025, to visit the region devastated by the Palisades and Eaton fires.

President Donald Trump on Tuesday threatened to strip "large scale federal funding" from California if the state goes against his executive order banning transgender athletes from participating in women's sports.

That funding could be withheld "permanently" if California continues to flout the Feb. 5 order, Trump warned on Truth Social.

The president's post complained that a trans athlete who qualified to compete against women in an upcoming competition is "practically unbeatable."

He wrote that he will order "local authorities, if necessary, to not allow the transitioned person to compete in the State Finals."

Trump added that he will speak with California Gov. Gavin Newsom, a Democrat, later Tuesday "to find out which way he wants to go" on the issue.

Trump did not name the athlete whose participation in women's sports drew his ire. AB Hernandez, a California high school student and transgender athlete competing in girls track and field, has recently received media attention.

Trump's threat to shut off federal funding could be significant for California, the world's fourth-largest economy.

Over one-third of the state's budget comes from the federal government, according to the California Budget and Policy Center. The state's 2025-2026 budget includes more than $170 billion in federal funds.

The threat also carries weight in light of Trump's increasing willingness to cancel billions of dollars in federal funds to universities, cities and other entities whose whose conduct he opposes.

Earlier Tuesday, Trump moved to cancel all remaining federal government contracts with Harvard University — reportedly totaling roughly $100 million — in the administration's latest salvo against the elite institution.

Trump has previously threatened to withhold federal funds from Maine over the state's compliance with Trump's executive order barring transgender women and girls from participating in female sports.

Newsom, widely seen as a contender for the 2028 Democratic presidential nomination, has been a vocal critic of a number of Trump policies, including on tariffs and immigration.

He downplayed the debate over trans athletes in April, saying the issue has been "weaponized by the right to be 10x, 100x bigger than it is."

But he also suggested in March that trans athletes participating in girls' and women's sports was "deeply unfair," separating himself from many of his fellow Democrats.

"I think it's an issue of fairness. I completely agree with you on that," Newsom told conservative influencer Charlie Kirk on his podcast.

Newsom's office did not immediately provide a comment in response to Trump's post.

Source: CNBC

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Devin

Economic

The report from the Commerce Department on Tuesday also showed shipments of these goods falling last month. Economists said President Donald Trump's flip-flopping on import duties was making it difficult for businesses to plan ahead. That has been evident in the deterioration in sentiment among businesses.

"I have predicted for months that business investment will be the main driver of a softer economic performance this year, as executives postpone their capital projects until they have more clarity on policy," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "These data offer the first confirming evidence of that hypothesis."

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, tumbled 1.3% last month. That was the largest drop since last October and followed an upwardly revised 0.3% gain in March, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders dipping 0.1% after a previously reported 0.2% drop in March.

Core capital goods shipments slipped 0.1% after increasing 0.5% in March. Nondefense capital goods orders slumped 19.1%. Shipments of these goods rebounded 3.5% after falling 1.1% in March. Front-running by businesses eager to avoid higher prices from Trump's sweeping tariffs on imports contributed to business spending on equipment, mostly information processing equipment, surging at its fastest rate in 4-1/2 years in the first quarter.

That helped to limit the drag on gross domestic product from a flood of imports. Trump has delayed higher import duties on most countries until July. The White House this month announced a deal with Beijing to slash tariffs on Chinese goods to 30% from 145% for 90 days.

The truce in the trade war between Washington and Beijing helped to lift consumer confidence in May after deteriorating for five straight months. Consumers, however, continued to worry about tariffs raising prices and hurting the economy.

The Conference Board's consumer confidence index increased 12.3 points to 98.0 this month, blowing past economists' expectations for an improvement to 87.0.

But concerns about the labor market lingered, even as consumers planned to spend more over the next six months on big-ticket items such as motor vehicles and household appliances, take vacations and buy houses.

The survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, narrowed to 13.2 from 13.7 in April. This measure correlates with the unemployment rate in the Labor Department's monthly employment report.

Trump last week ratcheted up his trade war, proposing a 50% tariff on European Union goods starting June 1 and threatened Apple (AAPL.O), opens new tab with a 25% duty on any iPhones manufactured outside the United States. Trump at the weekend, however, backed off his threat against the EU, restoring a July 9 deadline.

Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. U.S. Treasury yields fell.

Core capital goods

FRESH ROUND OF FRONT-LOADING

Economists are anticipating a period of volatility for business spending, with the pauses in higher tariffs for Chinese and EU products seen unleashing a fresh round of front-loading. Ultimately, they expect investment to soften this year.

Trump sees tariffs as a tool to, among other things, revive a long-declining U.S. industrial base, a feat that economists argue would be difficult to achieve in the short-term because of structural issues, including labor shortages.

While orders for computers and electronic products rebounded 1.0% last month, bookings for communications equipment decreased 2.6%. Electrical equipment, appliances and components orders fell 0.2%. But orders for machinery increased 0.8% as did those for fabricated metal products.

Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, dropped 6.3% last month after a slightly upwardly revised 7.6% rise in March.

Durable goods

Durable goods orders were previously reported to have jumped 7.5% in March. They were last month weighed down by a decline in orders for commercial aircraft as well as the fading boost from the tariff-related front-running.

Boeing (BA.N), opens new tab reported on its website that it had received only eight aircraft orders in April, down from 192 in March. Orders for motor vehicles and parts decreased 2.9%.

Overall transportation orders plummeted 17.1% after soaring 23.5% in March. The Atlanta Federal Reserve lowered its second-quarter GDP growth estimate to a 2.2% annualized rate on the data from a 2.4% pace earlier. The economy contracted at a 0.3% rate in the January-March quarter.

Some economists expect business spending on equipment to hold up if companies more or less maintain the first quarter's robust pace of front-running of imports.

"It is not until this import-driven boost fades later this year that we expect investment growth in that category to slow sharply," said Thomas Ryan, an economist at Capital Economics. "We expect business equipment investment to flatline in the second half of the year."

The tariff-driven economic uncertainty and higher mortgage rates are weighing on demand for homes, resulting in a rise in supply that is curbing house price growth. New housing inventory is at levels last seen in 2007, while the supply of previously owned homes is the highest in more than four years.

A third report from the Federal Housing Finance Agency showed house prices increased 3.7% in the 12 months through March after advancing 3.9% in February.

"Prospects for house prices do not look strong," said Carl Weinberg, chief economist at High Frequency Economics. "A new slowing trend is emerging as the economy slows and real incomes falter."