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China to Suspend Tariff Hikes on U.S.-built Cars in 90 Day Truce in the Trade War

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【Summary】China will temporarily suspend additional 25 percent tariffs on U.S.-made vehicles and auto parts the finance ministry said on Friday, following a truce in a trade war between the world’s two largest economies. China agreed to suspend the tariff on 144 U.S. vehicle and auto parts.

FutureCar Staff    Dec 14, 2018 12:41 PM PT
China to Suspend Tariff Hikes on U.S.-built Cars in 90 Day Truce in the Trade War

China will temporarily suspend additional 25 percent tariffs on U.S.-made vehicles and auto parts the finance ministry said on Friday, following a truce in a trade war between the world's two largest economies. China agreed to suspend the tariff on 144 U.S. vehicle and auto parts.

The temporary reduction in the tariffs will take effect on Jan 1, 2019 and last for 90 days.

The Ministry of Finance, in a statement on its website, also said it hopes China and the United States can speed up negotiations to remove all additional tariffs on each other's goods as it reduces tariffs from 40 percent to the 15 percent level that was levied before the trade fight began.

Although the additional 25 percent in tariffs that had been placed on U.S.-built cars and auto parts will be suspended, the original 15 percent tariff will remain in place. Automakers do not expect the United States to immediately cut its higher tariffs on Chinese imports in response to China's move.

U.S. President Donald Trump welcomed the announcement.

"China just announced that their economy is growing much slower than anticipated because of our Trade War with them. They have just suspended U.S. Tariff Hikes," Trump said in a tweet. "U.S. is doing very well. China wants to make a big and very comprehensive deal. It could happen, and rather soon!"

Good News for Tesla

Electric carmaker Tesla has been hard hit by the tariffs and the company responded by raising and lowering prices in China over the past several months.

In July, Tesla had raised prices of its cars in China by about 20 percent to offset the added costs from the higher tariffs. The price increase resulted in a plunge in Tesla vehicle sales in China. The China Passenger Car Association (CPCA) the drop at 70 percent, however, Tesla has disputed those figures.

In November, Tesla cut prices on the Model S sedan and the Model X SUV by 12 percent and 26 percent after facing falling sales. However, described the price cuts as a move to make Tesla cars affordable to Chinese customers, not as a result of the higher tariffs.

Shortly after the China's latest announcement to suspend the tariffs for 90 days, Tesla said it had cut prices on its Model S and Model X vehicles in China once again. The price of its Model S 75D will be cut by 84,200 yuan (about $12,200), according to Tesla's Chinese website.

In July, China hiked its tariffs on U.S. autos and parts after the United States raised its tariffs on Chinese vehicles and parts to 27.5 percent.

Wang said car makers in China that imported cars from the United States had seen a 30 percent decline in volume in the first 10 months of 2018, but the tariff cut would bring imports back to previous levels.

Although the suspension in the tariff is a positive step in easing trade tensions, the tariffs are levied on only a small percentage of vehicles, as auto exports between the two countries are relatively small.

China exported 53,300 vehicles to the U.S. market in 2017 and imported 280,208 U.S.-built vehicles, according to data from the China Automotive Technology and Research Center (CATARC), a government-affiliated think-tank.

In contrast, China's automakers produced 25.3 million cars so far this year, industry figures show.

German automaker BMW said it welcomes the temporary reduction of tariffs on vehicles imported to China from the United States, adding it is in talks with partners in China how to respond. BMW produces the X3, X4, X5 and X6 at its Spartanburg assembly plant South Carolina. Many of these vehicles are shipped to China.

The financial impact by fees in China for cars imported from the United States is expected to amount to almost 300 million euros ($338 million) for the BMW Group in 2018, the company has said.

The latest announcement on the planned tariff suspension followed China's first major purchase of U.S. soybeans since Trump and Xi Jinping's landmark talks on trade at the G20 Summit in Argentina on Dec. 1.

The tariff suspension and soybean purchase are early signs that the trade tensions between China and the United States may be finally cooling. But, if China and the U.S. fail to reach a deal at the end of 90 day truce, the threatened tariffs will be implemented once again.

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