After the ceremony, Zhang Ruiqiang sat down with Feng Yu. Feng Yu had told him something that puzzled him.
"Feng Yu, didn't you say that the US automobile industry has many problems, especially their labor costs, and is not suitable to build a factory? Why is Bing City Machinery Company building an automobile factory in the US?"
Building an automobile factory in the US is more expensive than transporting the production from Brazil to the US. This is not worth it.
Feng Yu explained. "We had built a factory in Brazil to sell to the US market. Brazil's labor costs are cheaper than Hua Xia. Among the major countries, Brazil is second only to India. "
"We will build a factory in Brazil and transport it to Canada. After paying 16.7% of the taxes, we will enter the US from Canada. If we enter the US directly, we will have to pay 25% of the taxes. Canada and the US have an agreement, and they only need to pay 5% of the taxes. This way, they will be paying 22.5% of the taxes. "
This is a reasonable way to avoid taxes, and Bing City Machinery Company and Canada will benefit from this, while the US will suffer some losses.
Do you think the US does not know about this? Of course. But in the agreement with Canada, the US also had many benefits in other industries. Especially the cars exported from the US to Canada, they only need to pay 5% tariff. This was very important.
In the past, the top three automobile manufacturers in the US are famous. Now, they are in decline, and they need this kind of agreement. If Canada increases its tariffs, the US's automobile competitiveness will drop, and the revival of Toyota and Chrysler will be a long way off.
"Now, many US automobile factories had gone bankrupt, including the factories of Japanese and European manufacturers. They would rather produce in other markets and sell to the US. They don't want to set up factories in the US as they cannot stand the Automobile Union there."
"The place they chose to set up their factories is different from us. They chose Mexico. They felt setting up a joint venture factory in Brazil will leak their technologies, and Brazil will be like our Hua Xia. We will catch up with their technologies and drive them out of the market. "
They know that the labor costs in Brazil are lower, and it is more cost-effective than building factories in the US. But those automobile manufacturers still refuse to build factories in Brazil. Isn't this a form of technology blockade?
They also have a joint venture factory in Brazil, just like the joint venture factory in Hua Xia in Feng Yu's previous life. They will use those outdated technologies to produce cars and sell them. What if they needed some better cars? Simple, import it. From the United States to Brazil.
For example, between Hua Xia and the United States, it was 25%. But between the United States and the European Union, it was 2.5%. This was the trade agreement between them.
In short, if you treat me high, I will treat you high. If you treat me low, I will treat you low. Of course, this was under the circumstance that the two parties' statuses were not that different.
Just like before Hua Xia entered the WTO, Hua Xia's automobile import tariff was as high as 70%. This was to protect the development of the country's automobile industry.
If Hua Xia had imposed a 7% tariff at that time, foreign cars would flood into the US. With better technologies and lower prices, Hua Xia will not be able to survive.
Of course, there is another solution now. Lower the tariffs between both countries. This way, Bing City Machinery Industry does not need to build a factory in the US and can export directly.
But if Bing City Machinery Industry lowered the tariffs with the European Union, all the European and US cars will flood into Hua Xia's market, and Hua Xia's automobile manufacturers will face a serious challenge.
Bing City Machinery Manufacturing Group and FAW can survive with their spare parts business. But other automobile manufacturers might not be able to survive.
Since the tariffs cannot be lowered and Bing City Machinery Industry wants to enter the US market, it is necessary to build a factory in the US.
Actually, there is another option. Set up a factory in Mexico and export to the US. The tariff is only 5%, and the prices are low. The cost of Mexican automobile workers is much lower than the US.
There are also rumors that the tariffs between the US, Canada, and Mexico will be lowered to 2.5% or even lower.
Just like the US and European Union had an agreement with Japan. Japan's automobile tariffs are 0%, and the US and European Union's tariffs on Japanese cars must be the lowest.
Japan is not afraid because Japan's automobile sales had never ranked in the top 20 in any country. The cars produced by Japanese manufacturers are the most popular among the Japanese.
Low tariffs are more suitable for Japanese automobile exports. Their automobile industry is one of their pillar industries, and Toyota has become the world's largest automobile manufacturer.
But now, those European automobile manufacturers had started to set up factories in Mexico. This will increase the cost of Mexican automobile workers, and the US will not watch them take advantage of the loophole.
The US will most likely start a process to impose punitive tariffs on European cars imported from Mexico to protect the US's interests.
The analysts from Wind & Rain Consulting and Taihua Consulting felt unless it is a joint venture, they will not be able to enjoy the tariff benefits if they set up factories in Mexico.
The Canadian automobile manufacturers can only export to the US from Brazil, or else, they will be punished with tariffs.
Feng Yu did some calculations. The labor cost of setting up factories in the US will not increase much, but the US Automobile Union's welfare requirements are too high, and no automobile manufacturers can afford it.
But now, all the automobile manufacturers are bankrupt, and the Automobile Union is keeping a low profile. Bing City Machinery Manufacturing Group will be setting up factories in other automobile factories when they withdraw their investments or go bankrupt. They might get some preferential policies, like tax breaks, etc.
This time, the US will be setting up a fully automated automobile production line, and the requirements for the automobile workers will be lesser. The automobile workers are facing unemployment now, and Feng Yu can help them settle down. The Obama administration will welcome him.
At the same time, the production line will be highly automated, and the workshop conditions will be better. The Automobile Union will not have to pay any subsidies.
Also, the Obama administration wants to implement universal health insurance. Feng Yu will support this policy and let the US government handle the health insurance. This will also reduce his expenses.
As for the pension insurance, Feng Yu's bank has an insurance business, and he can lower his costs.
"All in all, although the cost is still slightly high, it's not too far off. Most importantly, we had helped the Obama administration to settle down some factories and workers. The Obama administration had promised to give Wind and Rain and Lenovo some preferential policies. Overall, we are making a profit. "
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