China Cuts Car Tariffs, in Latest Peace Offering to U.S. on Trade

Posted May 22, 2018 9:21 a.m. EDT

HONG KONG — China has carried out a pledge to cut tariffs on imported cars and car parts, the latest move by Beijing to ease trade tensions with the United States. The U.S. auto industry and its workers, however, might be unimpressed.

China’s Finance Ministry said on Tuesday that it would trim tariffs on imported cars to 15 percent of their wholesale value, from 25 percent. It also cut tariffs on imported car parts, reducing them to a standardized 6 percent. Chinese tariffs on parts currently range from 6 percent to 25 percent, depending on the category, and average about 10 percent.

The moves are intended to address long-standing complaints from the Trump administration and global automakers that China’s tariffs on imported cars are much too high. Those tariffs are one reason — though by no means the only reason — that global automakers like Ford, General Motors, Toyota and Volkswagen have built enormous factories in China over the past two decades. Those factories, built and run with Chinese joint venture partners, have helped make China by far the world’s largest automaker.

Chinese tariffs will still be relatively high, however, and the change is unlikely to motivate automakers to shift production away from China. The United States has a tariff of 2.5 percent on cars, minivans and sport utility vehicles, for example, although it has a 25 percent tariff on imported pickup trucks. Global automakers have also grown comfortable making cars in China, where sales have boomed.

The drop “is a significant reduction, but it really won’t have much of an effect” on where automakers assemble vehicles, said James Chao, the chief Asia auto analyst at IHS Markit.

American and Chinese officials have moved in recent days to calm trade tensions that have mounted since the beginning of the year. The United States has signaled a willingness to strike deals and to ease penalties against ZTE, a Chinese telecom maker that has admitted to violating U.S. sanctions on countries like Iran and North Korea. China has allowed big-ticket U.S. mergers that are subject to Beijing’s antitrust reviews to go forward and dropped an investigation into imports of American sorghum.

President Xi Jinping of China had promised at a forum last month that his government would reduce automotive tariffs but had not said by how much. Beijing is also lifting in phases its requirements that foreign automakers manufacture cars in China through 50-50 joint ventures with Chinese partners. The Shanghai government announced at the end of last week that Tesla Motors, the American maker of high-end electric cars, had registered a wholly owned company in the city.

By cutting the tariff on imported car parts more than on imported cars, China may actually strengthen its role as the world’s largest car-assembling nation.

Lower tariffs on imported components will make it more attractive for global manufacturers to do much of their final assembly in China, since they will not have to pay as much to import high-tech parts made elsewhere.

Cementing China’s role as the leading country for car assembly will help Beijing move the economy toward more sophisticated industries that can provide well-paid jobs for an increasingly well-educated population. Through a process Chinese officials call supply-side reforms, they hope to close older, smokestack industries that offer little more than low wages and high pollution.

Tariffs will be reduced, the Finance Ministry said in a statement, “in order to further expand reform and opening up, promote supply-side structural reforms, promote the transformation and upgrading of the auto industry, and meet the people’s consumer demand.”

It also hopes to ramp up exports of cars made in China, and reducing its own tariffs makes it less likely that Chinese-made cars will be hit by retaliatory tariffs.

German luxury carmakers and German manufacturers of high-technology brakes could also be winners. While all of the world’s major auto parts manufacturers now have extensive operations in China, a handful of the most sophisticated components, notably advanced braking systems, are made only in Germany.

Chancellor Angela Merkel of Germany is scheduled to meet Xi in Beijing this week. The Chinese government is eager to gain her support in its trade struggles with the Trump administration, at a time when Germany’s business elite is deeply worried about Chinese acquisitions in the robotics and auto parts sectors.

Ford still exports some Lincolns to China, and Tesla exports large numbers of electric cars to China despite the current tariff. General Motors has already moved to China practically all of its production for the Chinese market, including Cadillacs, which are now made in Shanghai.