Cut in car import duty as trade war fears ease

BEIJING: China will cut the import duty on passenger cars to 15%, boosting auto makers such as BMW AG and Ford Motor Co just as the immediate threat of a trade war with the United States recedes.

The State Council, China’s cabinet, has decided to reduce the levy from the current 25% that has been in place for more than a decade, according to people familiar with the plan, who asked not to be identified as the information isn’t public. Bloomberg News had reported last month that China was weighing proposals to reduce the car import levy to 10% or 15%.

A reduction in import duty follows a truce between US President Donald Trump’s administration and Chinese officials as they seek to defuse tensions and avert an all-out trade war.

While the levy reduction could be claimed in some quarters as a concession to Trump and will be a boon to US carmakers such as Tesla Inc and Ford, the move will also end up benefiting European and Asian manufacturers from Daimler AG to Toyota Motor Corp.

Shares of Jaguar Land Rover owner Tata Motors Ltd and BMW AG jumped on the news.

Tata Motors jumped as much as 4.7% in Mumbai while BMW rose as much as 1.5% in Frankfurt. Daimler added as much as 1.3%.

Chinese carmakers BAIC Motor Corp, BYD Co and Guangzhou Automobile Group Co also held to gains as the reduction in the tariff wasn’t as large as it could have been. Luxury sales leader Audi, part of Volkswagen, has been making cars in the country since 1996.

General Motors Co’s Cadillac, which has relegated Lexus to fifth in the luxury-car rankings, opened a factory in Shanghai in 2016.

For Tesla, a tariff cut will provide a boon until the company manages to set up local production.

The Palo Alto, California-based company has been working with Shanghai’s government since last year to explore assembling cars in China.

Last month’s announcement by Beijing that it will allow foreign new-energy vehicle makers to fully own auto factories as early as this year removed the primary hurdle in the way of founder and billionaire Elon Musk.

China announced May 18 that it would end its anti-dumping and anti-subsidy investigation into imports of US sorghum, citing “public interest.”

That move, coupled with recent steps including restarting a review of Qualcomm Inc’s application to acquire NXP Semiconductors NV, signal a conciliatory stance from the Chinese side.

China has argued its plan to reduce import tariffs on foreign vehicles is long-standing and rejected previous efforts by Trump to claim credit for it.

In particular, high-end autos will feel the effects of a tariff cut because less of their production has moved locally. For example, Toyota’s Lexus would benefit as the only premium Japanese marque that doesn’t manufacture in China or hasn’t announced plans to do so.

Foreign carmakers have long pleaded for freer access to China’s auto market, while its own manufacturers are expanding abroad. — Bloomberg