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China Unexpectedly Slashes Auto Tariffs After Trump Trade Truce

In an unexpected, but notable, victory for President Trump’s aggressive trade agenda and exporters of cars around the globe, China’s Ministry of Finance announced Tuesday morning that it would slash passenger car duties to 15%, further opening up the market that’s been a key target of the U.S. in its trade fight with Beijing. This comes less than a month after China decided to ease restrictions on foreign competition in its auto sector and also address some of the US’s concerns about intellectual property theft.

The reduction follows a truce that Treasury Secretary Steven Mnuchin announced during a Sunday appearance on “Fox News Sunday”. In response, the US has continued to reverse its policy of pressuring telecom giant ZTE, with Trump taking steps to rescue it.

“This is, without a doubt, positive news,” said Juergen Pieper, Frankfurt-based head of automobiles research at Bankhaus Metzler who spoke with Bloomberg.

Investors would agree, with European auto stocks gapping higher on the news.

The US is now also expected to make a concession, perhaps in addition to reducing pressure on ZTE. Though for Trump, caving on ZTE is still a pretty big deal, even as the administration has been adamant about framing it as a national security issue and not a trade issue.

“You can’t completely disregard the fact that there are certain imbalances in China’s favor. This could be a signal that if one side is making concessions, it could lead to the Americans easing some of their pressure as well.”

Meanwhile, according to Bloomberg, the import duty on car parts will fall to 6%, from 25%. But Bloomberg warns that the cuts are largely symbolic, since they will only impact about 4.2% of car sales – at least for now (about 29 million cars were sold in China last year, and as tariffs fall, foreign car buying could become more commonplace).

China’s President Xi Jinping and his Vice Premier Liu He both advised that China would start implementing market liberalizations particularly in its automobile market in the coming months. The decision also comes after China announced over the weekend that China would end its anti-dumping investigation into sorghum. It has also signaled that there might be a review of Qualcomm’s bid to acquire NXP Semiconductors, which would be tantamount to another olive branch.

US and European carmakers were, understandably, delighted about China’s decision.

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