Business World

Tuesday 22 January 2019

China move to cut tariffs bears out Trump G20 tweet

In traffic: Cars on a motorway in Shanghai – since July China has slapped a 40pc tariff on American-made cars
In traffic: Cars on a motorway in Shanghai – since July China has slapped a 40pc tariff on American-made cars
Concession: US President Donald Trump claimed a G20 victory

Bloomberg News

China is moving toward cutting its trade-war tariffs on imported US-made cars, a step already claimed by US President Donald Trump as a concession won during trade talks in Argentina.

A proposal to reduce tariffs on cars made in the US to 15pc from the current 40pc has been submitted to China's Cabinet to be reviewed in the coming days, according to people familiar with the matter. Shares of carmakers including Daimler, Ford and Tesla rose on the news.

The step hasn't been finalised and could still change. While reversing the retaliatory duty is a major climbdown by Beijing, it could refocus the two sides toward implementing the trade-war truce agreed earlier this month. Relations have since been shaken by the arrest of Huawei CFO Meng Wanzhou in connection with sanctions violations.

"Last week, events seemed to conspire to throw the truce into disarray, but the underlying incentives of both sides at the moment are to try to maintain that truce," said Freya Beamish, chief Asia economist at Pantheon Macroeconomics.

"Now we are seeing the possibility that China will come through with reductions of tariffs on US autos and that's another good, concrete step."

Top Chinese and American trade officials spoke by phone yesterday, signalling that dialogue on trade issues is continuing despite the ongoing tension over Huawei.

BMW, which exports sport utility vehicles from the US to China, rose as much as 3.3pc to €72.40 in Frankfurt. The German luxury carmaker previously said the tariffs would cost the company $300m this year alone.

Daimler, which named the tariffs as the key reason in a profit warning in June, gained as much as 3.7pc. Volkswagen rallied 4.6pc, while Ford advanced 2.7pc in premarket trading. General Motors was up 3pc and Tesla added 1.8pc.

In July, China had boosted the tariff on American-made cars to 40pc as part of retaliatory measures against the US. Following a summit on trade in Buenos Aires earlier this month, Mr Trump jolted global car stocks with a tweet that China agreed to "reduce and remove" tariffs on imported American-made cars, something China did not confirm at the time.

Mr Trump's tweet came shortly after he agreed with Mr Xi to a truce in the trade war during a meeting at the G20 summit in Argentina.

The trade war has taken a toll on car companies that manufacture in the US, with the makers of Mercedes-Benz and BMW both warning of lower profits this year as tariffs forced them to hike prices in China. Car sales in the world's second-biggest economy declined for a sixth consecutive month in November, bringing the market closer to its first annual drop in at least two decades.

That's piled pressure on car companies that have relied on the country for growth amid declining car sales in the US.

The tariff reduction benefits Daimler and BMW more than US carmakers such as General Motors or Ford. That's because the German luxury brands dominate the top 10 list of vehicle imports into China.

Longer-term, China has a lot to gain from free trade in cars as Chinese manufacturers such as Guangzhou and Geely look to move overseas. The US currently charges a 27.5pc tax on imported cars from China.

Of China's $51bn of vehicle imports in 2017, about $13.5bn came from North America, including sales of models made there by non-US manufacturers like BMW. China imported 280,208 vehicles, or 10pc of total imported cars, from the US last year.

Bloomberg

Irish Independent

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