A Tesla Model 3 displayed at the Guangzhou Autoshow. Photo: VCG

US President Donald Trump's multi-year tariff war against China is facing unprecedented legal challenges and bringing potentially massive financial damage to the US government, as several US and global automakers, including Tesla and Mercedes-Benz, filed lawsuits to block what they call unlawful tariffs on their imports from China, and sought refunds with interest on what they have already paid.

Coming days after the World Trade Organization (WTO) ruled that Trump's tariffs on Chinese goods were against global trade rules, and less than two months before a heated presidential election, the lawsuits from four auto giants also deal a major blow to a key selling point of Trump, who has called himself a "tariff man," and constantly boasted that his trade war with China was a political achievement, Chinese experts noted.

While the WTO's ruling may have carried no teeth as it was brushed off by US officials, the lawsuits could lead to serious repercussions for the Trump administration, which could encourage other firms to seek refunds of more than $63 billion they have paid under certain tariffs, experts said.

'Unlawful' tariffs 

US electric carmaker Tesla was first reported to have filed a lawsuit against the US government over the tariffs on auto parts it imported from China. 

In a case filed before the US Court of International Trade in New York, Tesla said the tariffs were "arbitrary, capricious, and an abuse of discretion," and demanded that the government refund their tariffs with interest.  It also listed Robert Lighthizer, the US trade representative, as a plaintiff. 

Although Tesla did not specify the items they are paying duties on, the refund it is seeking involves the 25 percent tariffs on List 3, and the 7.5 percent tariff on List 4. Tesla didn't reply the Global Times' request for comment.

Following news of Tesla's lawsuit, media reported on Thursday that three other US and global automakers -Ford, Volvo and Mercedes-Benz -filed similar lawsuits.

Mercedes-Benz claimed that the Trump administration's tariffs were "prosecution of an unprecedented, unbounded, and unlimited trade war of over $500 billion in imports from the People's Republic of China," the Guardian reported.

The automakers may have a chance to win, given the massive damage inflicted by the tariffs on their businesses, and the strong legal foundation upon which they filed their cases, Chinese experts said.

"It is practically replacing international agreements with its own domestic laws.  American courts have to weigh whether the additional tariffs of the Trump administration are legal," Lin Guijun, vice president of the University of International Business and Economics, told the Global Times on Thursday, noting that the US tariffs have already been ruled in violation of WTO rules.

A panel of experts at the WTO said on September 15 that the US tariffs imposed on more than $200 billion in Chinese products under its so-called Section 301 domestic trade act violated global trade regulations. 

While the US, which sought to cripple the WTO and threatened to leave the multilateral body, may be able to shrug off the ruling, a US court decision could be hard to ignore, and even result in financial damage, experts noted.

Although it is hard to calculate the actual amount of tariffs the four companies have paid, US importers have paid a total of $63.4 billion for goods from China, under the Section 301 Duty requirements since July 6, 2018, according to the latest data from the US Customs and Border Protection (CBP), which typically collects duties from importers within 10 days of shipments clearing Customs. 

Aside from the 301 duties, the US has also slapped tariffs on more Chinese goods based on various claims. Customs duties soared over the years since Trump used tariffs as his biggest trade weapon. For the 2019 fiscal year, a total of $71.9 billion in duties were collected by the CBP, rising sharply from $41.6 billion in 2018 and $34.6 billion in 2017, CBP said.

If the four companies win their lawsuits, that could mean more companies could jump on the bandwagon, experts said, adding, though, that it might take time to materialize.

Failing selling point

However, the lawsuits and their prospects could damage one of Trump's biggest campaign selling points, as Trump has called himself a "tariff man" and constantly boasted that the US government has gained billions of dollars from his tariffs, experts said.

As part of his reelection bid, he even promised to continue slapping tariffs on companies that move overseas, bragging that his agenda is "Made in the USA" and that foreign companies would pay the tariffs.

"If we try to understand [the tariff war through Trump's logic, then this could be a political achievement for him, because he kept his promise. However, this came at the expense of some US industries, businesses and consumers," Song Guoyou, director of Fudan University's Center for Economic Diplomacy, told the Global Times on Thursday.

The price for automakers is among the harshest, as China has been an indispensible supplier and market for US automakers, and Trump's duties have left US automakers in the impossible situation of either finding cheap and quality alternatives in other countries, or increasing their costs of production, experts said. 

In an earlier waiver that it required to be relieved from tariffs in 2019, Tesla said it is "unable to find another manufacturer" other than China that meets their requirements, requiring a relief on the 25 percent tariffs on some of its parts.

"Tesla heavily relies on China for its spare parts, as are other auto companies," Cui Dongshu, secretary general of the China Passenger Car Association (CPCA), told the Global Times. 

"That is why I think Trump might treat the cases with caution, especially when the US economy needs these companies' contributions more than ever as the COVID-19 ravages the country," Cui said.

The US automobile industry has been beset by economic woes, including the increased production costs from the tariffs, and slumping demand during the COVID-19 crisis, leading to large layoffs. In August, more than 92,000 people lost their jobs in motor vehicles and parts manufacturing compared to the previous year, and 225,700 jobs were cut from retail in August. 

Aside from being directly hit by the tariffs, higher production costs could also mean less competiveness for the automakers in the Chinese market, experts said.

As China becomes a huge consumer market, companies like Tesla have greater business opportunities in China, especially with the government policy for new-energy vehicles in place, said Bai Ming, deputy director of the international market research institute at the Chinese Academy of International Trade and Economic Cooperation.

"US automakers are under increasing pressure from competitions from other countries," Bai said. "The sector has become more price-sensitive, and any increase in cost will drastically drag down the US brands' strength."

For companies like Tesla, China has become the sole reason for its survival especially against the backdrop of the pandemic, thanks to the country's rapid economic recovery.

In the first half of the year, Tesla became the biggest seller of electric vehicles in China, with a 21 percent market share.

"Tesla may struggle by the year-end without the support of the Chinese market," Cui said.