China Cuts Car Tariffs, But That May Not Advance The 'America First' Theme

China’s Finance Ministry announced Tuesday it would slash tariffs on imported cars as part of its conciliatory trade negotiations with the United States.

Import tariffs will drop from 25 percent of vehicle wholesale value to 15 percent, and charges on car parts will drop from an average 10 percent to a standard 6 percent.

How Tariffs Affected Business

The previously high cost of exporting to China had long incentivized U.S. automakers to produce within Chinese borders and out of local factories.

In operation with Chinese joint venture partners, as mandated by the government, Ford Motor Company (NYSE: F), General Motors Company (NYSE: GM) and Tesla Inc (NASDAQ: TSLA), among others, helped transform China into the world’s leading auto manufacturer.

In 2017, the country produced nearly 23.6 million passenger cars against the U.S.’s 8.1 million, according to the European Automobile Manufacturers Association.

How Cuts Could Change Things

As it is, Ford plans to move Focus production to China in 2019, and Tesla will unveil a China plant later this year.

With rates still lingering far above the U.S.’s 2.5-percent tariff on cars, minivans and sports utility vehicles, the tax reduction isn’t likely to drive repatriation or affect U.S. automakers’ production choices, according to the New York Times.

In fact, The New York Times noted the more significant cut to car-part tariffs than to car tariffs cheapens the in-China assembly process, which may be a draw for producers.

At the same time, China’s fading requirements for foreign automakers to operate domestically through 50-50 joint venture partnerships may entice manufacturers to further increase their presence in the country. Tesla was reported last week to have registered a wholly owned company in Shanghai.

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