China agreed to reduce Tariffs on Auto to 15% from 40%

Market Expertz   |     December 12, 2018


China has finally made a move to address the Economic concerns where Beijing agrees to reduce auto tariffs and buy more American products. The cut in tariffs on US autos will be reduced to 15% from 40%. The timing details as well as the documentation of the tariff reduction have not yet been received by Washington. China had increased the tariff on American-made cars to 40% in retaliation against US because of the trade war prevailing over quite some time in the past. The trade war did take a toll on car companies that manufacture in the US with tariffs forcing auto giants Mercedes-Benz and BMW to hike prices in China thus indicating lower profit in this fiscal year. Car sales in China declined for sixth consecutive month in November 2018, bringing the market closer to its first annual drop in at least two decades. The auto giants have relied on China for its growth amid declining sales in the US thus piling up the pressure on auto companies and eventually affecting the profits. The German Luxury brands dominate the top 10 list of vehicle imports into China thus companies like Daimler and BMW will benefit more than US automakers like General Motors or Ford Motor Co.

From a long term perspective, China will gain a lot from free trade in autos as Chinese auto manufacturers like GAC Group and Geely Auto to name a few are looking for its expansion overseas. In 2017, China imported about 280,000 vehicles which is approximately 10% of total imported cars which were from US and about $13.5 billion worth of vehicle imports came from North America. US exported cars and light trucks to China which were worth $9.5 billion in 2017 but in 2018, it has dropped significantly owing to the retaliatory tariffs measures taken by Chinese government against US. This gave a telling advantage to exporters in Europe and Japan in summer 2018. Tesla will benefit a lot from this tariff cut as the company is been working with Shanghai's government on establishing a factory to assemble cars in China.

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