President Donald Trump said in a late-night tweet that China has agreed to “reduce and remove” tariffs on imported American-made cars, a claim that wasn’t immediately confirmed by Beijing.
Trump gave no other details in his post, which came shortly after he agreed with President Xi Jinping to a truce in the trade war during a meeting at the Group of 20 summit in Argentina. The move, if verified, would hand automakers from Tesla Inc. to Daimler AG and BMW AG a potential reprieve after higher levies hit sales in the world’s biggest car market.
The tweet comes after the U.S. and China emphasized different results from Sunday’s high-stakes meeting between Trump and Xi. China, which has hiked the tariff on U.S.-made cars coming into the country to 40 per cent amid the trade fight, hasn’t made a similar announcement on auto tariffs. The country’s commerce, foreign affairs and finance ministries didn’t immediately respond to faxes seeking comment on Trump’s claim.
China said last week that tariffs on U.S. autos would be 15 per cent if not for the trade dispute, and it called for a negotiated solution. Chinese officials discussed the possibility of lowering tariffs on U.S. car imports before Xi met Trump in Argentina, according to a person familiar with the situation who asked not to be identified. But the magnitude and timing of such a reduction were unclear, the person said.
The trade war has taken a toll on car companies that manufacture in the U.S., with the makers of Mercedes-Benz and its rival 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 fifth consecutive month in October, bringing the market closer to its first annual drop in at least two decades. That’s piled pressure on auto companies that have relied on the country for growth amid declining car sales in the U.S.
Tesla didn’t respond to an email seeking comment while BMW’s China unit didn’t offer an immediate comment on Trump’s tweet.
The tariff reduction benefits Daimler and BMW more than U.S. automakers such as General Motors Co. or Ford Motor Co. That’s because the German luxury brands dominate the top 10 list of vehicle imports into China.
“China isn’t giving away that much as German automakers like BMW and Daimler benefit the most,” said Janet Lewis, an analyst at Macquarie Capital Securities in Tokyo. “Longer-term, China has more to gain from free trade in autos,” with local Chinese manufacturers such as Guangzhou Automobile Group Co. and Geely Automobile Holdings Ltd. looking to move overseas, she said.
Chinese carmaker shares pared gains, while shares of auto dealerships in China and Hong Kong rallied on Trump’s tweet. China Grand Automotive Services Co., which sells various car brands and provides auto financing, surged by the 10 per cent daily limit in Shanghai.
“If China cancels tariffs on high-end imported cars, that should benefit dealerships as the prices will be lower,” said Angus Chan, a Shanghai-based analyst with Bocom International.
Trump last week ordered a separate review of China’s 40 per cent tariff on auto imports from the U.S., 25 percentage points of which is the result of Chinese retaliation against Trump’s own tariffs on imports from China. The U.S. currently charges a 27.5 per cent tax on imported cars from China.
Of China’s US$51 billion of vehicle imports in 2017, about US$13.5 billion came from North America, including sales of models made there by non-U.S. manufacturers like BMW. China imported 280,208 vehicles, or 10 per cent of total imported cars, from the U.S. last year, according to China’s Passenger Car Association.
U.S. exports of cars and light trucks to China were worth US$9.5 billion in 2017 and have dropped off significantly since China imposed its retaliatory tariffs over the summer that gave exporters in Europe and Japan a significant advantage.
The trade spat between the U.S. and China is set to cost BMW some 300 million euros (US$341 million) this year, Chief Financial Officer Nicolas Peter said last month. The company started making the X3 SUV in China this year, in addition to the several other models like the 1-, 3- and 5-Series sedans.
For Tesla, a tariff cut will provide a boon until the company sets up local production. The Palo Alto, California-based carmaker has been working with Shanghai’s government on establishing a factory to assemble cars in China.
Foreign carmakers have long pleaded for freer access to China’s auto market, while its own manufacturers are trying to expand abroad. In April, China announced a timetable to permit foreign automakers to own more than 50 per cent of local carmaking ventures.