China economy

China rolling back tariffs on US car imports for three months, in likely boon to American carmaker Tesla as Trump-Xi talks bear fruit

  • Beijing temporarily suspends a 25 per cent tariff on 144 cars and auto parts and a 5 per cent tariff on 67 other auto parts
  • This is the latest sign that negotiations to defuse the trade war are bearing fruit
PUBLISHED : Friday, 14 December, 2018, 7:30pm
UPDATED : Saturday, 15 December, 2018, 2:41am

China will temporarily roll back tariffs on US car imports, Beijing announced on Friday in its first concrete concession to the US since Chinese President Xi Jinping and his American counterpart Donald Trump agreed to a 90-day trade war truce in Buenos Aires on December 1.

An additional 25 per cent in tariffs that had been placed on American-made cars and auto parts will be suspended, although the original 15 per cent will remain. This affects 144 products including hybrid cars and diesel-engine trucks.

A 5 per cent tariff that had started being collected on 67 other auto parts will also be suspended for three months, the tariff committee of the State Council said.

A statement by the Chinese government said that the move implements the consensus reached by Xi and Trump at their Buenos Aires working dinner.

After the high-stakes dinner on the sidelines of the G20 summit, Beijing and Washington issued separate statements about the agreements. Beijing said the US had agreed to halt additional tariffs and that the two countries will talk to undo all additional tariffs, without mentioning concessions China had agreed to make.

Washington, meanwhile, told the public Beijing had agreed to boost its purchase of US agricultural and energy products, make structural changes and remove automobile tariffs.

The statement published on Friday night by China is the first time since the Trump-Xi summit that Beijing has made public its concessions, a move that is likely to help de-escalate trade tensions when the two countries’ trade negotiation teams meet to find a deal in the 90-day truce period.

Meanwhile, China’s temporary halt of the automobile tariffs is also expected to give US carmakers such as Tesla a helping hand.

Trump tariffs may cost US auto industry 1 million car sales a year

The Palo Alto, California-based electric carmaker, which is competing against dominant domestic Chinese electric carmakers in the world’s largest auto market, announced after the State Council’s move that it will reduce the prices of its cars sold in China. For example, the price of its Model S 75D will be cut by 84,200 yuan (about US$12,200), according to the company’s Chinese website.

Tesla has been hard hit by the tariffs. Unlike General Motors and Ford, it does not have a partnership with domestic players to make and sell cars in China. In July, Tesla raised prices of its cars in China by about 20 per cent because of the added costs from the extra tariffs.

The price hike resulted in a plunge in Tesla sales in China. The China Passenger Car Association (CPCA) put the drop at 70 per cent, but Tesla disputed the figures.

Facing reduced sales, Tesla cut prices on the Model S saloon and the Model X SUV by 12 per cent and 26 per cent, respectively, in late November in what it described as a move to make Tesla cars affordable to Chinese customers.

Beijing’s decision to suspend its tariffs is latest positive sign that trade negotiations to defuse the ongoing trade war between China and the US are bearing fruit. Earlier this week, China purchased up to 2 million tonnes of US soybeans, the first such purchases since the beginning of the trade war in July.

“The tariff was a big issue for imported cars from the US,” said Cui Dongshu, secretary general of the CPCA. “After all pricing is one of the key factors that affects the luxury auto market.”

Trade war: Ford looks at making more cars in China to beat tariffs

Ford’s Lincoln brand, produced in the US, is expected to also benefit from the rollback. Ford is making a big push for the luxury brand in China.

The mainland imported 254,200 American-made cars in 2017, accounting for 22.5 per cent of the nation’s total auto imports, according to the General Administration of Customs. Luxury brands are especially popular.

Mainland China imported 38,958 Lincoln marques in the first 10 months of this year, down 28.3 per cent on year, according to the CPCA.

Tesla sold 17,000 vehicles on the mainland last year, but it was still lagging far behind domestic electrical vehicle brands, such as BYD. Its sales last year were up by 51.6 per cent from 2016, according to the China Automobile Dealers Association.

Its sales, however, represented just 2.2 per cent of the country’s total new-energy vehicle sales for 2017, which stands at 777,000 units.

However, in a major step, China is allowing Tesla to set up the first wholly foreign-owned factory in the country. The electric car maker's plant near Shanghai will have an annual capacity to produce 500,000 electric vehicles.

Tesla to make electric cars in China even as trade war simmers

Beijing in April said it was scrapping its 50 per cent foreign-ownership limit for vehicles powered by alternative energy. That will give Tesla a big boost to compete against bigger local electric-vehicle players.

Shen Dingli, an expert in American studies at Fudan University in Shanghai, said the vast size of China’s auto market will continue to be attractive to US carmakers.