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17th of December 2018

Economy



China will slash car tariffs, Trump says in a (vague) tweet | The Star

BEIJING—After the negotiations over steak dinners were done, after he said his goodbyes to President Xi Jinping of China and after both governments issued their public statements about the trade truce between the United States and China, President Donald Trump had one more surprise to drop.

In a late-night Twitter post Sunday, Trump said that China had agreed to make a small but politically significant concession to the United States: It would drop tariffs on imports of U.S.-made cars.

“China has agreed to reduce and remove tariffs on cars coming into China from the U.S.,” he wrote. “Currently the tariff is 40%.”

The disclosure took trade watchers and auto industry figures in both countries by surprise. The issue of auto tariffs had not appeared in the public disclosures from either the U.S. or Chinese governments issued after the two sides hammered out their temporary trade-war truce.

It was unclear what China had agreed to do, if it had agreed to do anything at all. A spokesman for the Chinese Foreign Ministry referred questions to the Commerce Ministry. That ministry was silent, and its weekly news conference is not until Thursday. U.S. officials were unavailable for comment.

China does not import many cars from the United States. U.S. imports represent roughly 1 per cent of the market, or about $10.5 billion (U.S.) worth. While Chinese drivers love to buy Chevrolets and Fords, those vehicles are generally made in Chinese factories through joint ventures between local and U.S. carmakers.

A concession on auto tariffs could be significant, however. It could suggest that China is willing to bend on the issue of Chinese-made cars, an area of great concern for the White House. The Trump administration worries that China could someday swamp U.S. car lots with Chinese-made cars that could seriously damage the Detroit automakers.

Trump targeted Chinese-made cars when he issued his first tariffs on $50 billion in Chinese-made goods, marking the opening salvo of the trade war. China retaliated by raising tariffs on U.S.-made cars to 40 per cent, compared with 15 per cent on cars from everywhere else.

Still, it was far from clear that was the case, and industry experts said the president’s Twitter post seemed to leave open a variety of interpretations.

One possibility is that Trump was mistakenly referring to China’s move this summer to reduce tariffs on auto imports from everywhere to 15 per cent from 25 per cent. China’s retaliatory tariffs brought the rate on U.S.-made cars up to 40 per cent.

Another possibility is that a deal on cars was part of a larger agreement alluded to in vague statements the United States issued Saturday night, when the truce was first announced. The Trump administration said China had agreed to purchase “agricultural, energy, industrial, and other product from the United States.” As a practical matter, China would have to lower its tariffs on U.S.-made goods or those purchases would be more expensive.

But that would be politically sensitive in China because the Buenos Aires accord allows the United States to keep its tariffs on $250 billion in Chinese-made goods, though Washington agreed to postpone a Jan. 1 increase in tariff rates.

If cuts in tariffs on U.S.-made cars are in the works, the biggest beneficiaries are likely to be German. BMW and Mercedes both produce SUVs in the United States and export them all over the world, including a combined total of roughly 180,000 a year to China. That is still a tiny share of China’s auto market, which reached 24.7 million cars sold last year.

U.S. brands in China usually have a local flavor. General Motors ships almost no U.S.-built vehicles to China. Fiat Chrysler ships some Jeep Grand Cherokees but has a huge new factory in southern China to build most other Jeeps. Ford ships a few Lincolns but is in the process of shifting production of these models for the Chinese market to factories in China. Tesla ships electric cars to China from the United States but is preparing to build its own factory in Shanghai.

Any reduction in tariffs “is very good news for some niche products,” said Yale Zhang, managing director of Automotive Foresight, a Shanghai consulting firm. “The international giants have already localized most of their mass production cars.”

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