Mercedes Benz & Tesla to Cut Prices in China After 90 Day Suspension of Tariffs

author: Xiaoli Tian   

German luxury automaker Mercedes-Benz said on Monday it would offer discounts on cars imported into China from the United States until March 31, after Beijing and the Trump administration agreed to a 90 day truce in the ongoing trade war between the U.S. and China.

Prices of four models were cut by between 36,000 yuan ($5,219.96) and 135,000 yuan, Mercedes wrote on its Chinese micro-blog.

Electric automaker Tesla also said it will cut prices on the Model S and Model X in China by about $15,000 and $9,500, respectively. The price cut takes effect on Jan 1. In July, Tesla raised prices in China by around $20,000 for each vehicle as a result of the newly imposed tariffs, after cutting them two months eariler after China reduced the high import tariffs on U.S-built vehicles.

The 40 percent tariff hit electric automaker Tesla especially hard, as China is one of Tesla's biggest markets.

The price cuts by the two automakers comes after the U.S. and China agreed to a 3 month suspension of tariffs. After the G20 summit in Argentina, China and the U.S. agreed to a 90 day truce in the escalating trade war. As part of the agreement, China will temporarily suspend additional 25 percent tariffs on U.S.-made vehicles and auto parts beginning January 1, the finance ministry said on Friday.

In November, it was reported that Tesla sales in China where down by 70 percent as a result of the trade war, although Tesla disputes that claim. An official from the China Passenger Car Association reportedly told Reuters that data showed that Tesla sold just 211 vehicles during the month of October in the world's largest car market.

A Timeline of the Trade War

The trade war began in April 2017 shortly after President Trump took office. Trump moved forward on a proposal to slap a 25 percent tariff on $50 billion worth of Chinese goods as well as measures to restrict Chinese investment in the United States. Trump said that imports of foreign steel and aluminum from China and other countries could be a threat to national security.

Almost a year later in March 2018, Trump signed a bill imposing a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports, with Canada and Mexico being exempt from the tariff. By excluding Canada and Mexico, Trump targeted Chinese steel exports.

China retaliated in April 2018 when Beijing imposes tariffs on about $3 billion worth of U.S. imports, including a 15 percent duty on 120 American products including soybeans, fruits, nuts, steel pipes and wine.

In addition, China slapped a 25 percent tax on eight other U.S. goods, including recycled aluminum and pork. The Chinese government says its tariffs are specifically in response to the US trade measures against steel and aluminum.

By May 2018, the U.S. and China put the trade war on hold, but that would not last. In a joint statement, the countries said China will "significantly increase" purchases of US goods and services, but they did not put a dollar amount on China's commitment. Both sides agree to not impose new tariffs on one another while talks continue.

"We're putting the trade war on hold," US Treasury Secretary Steven Mnuchin told Fox News at the time.

Several days later China relented. China's Finance Ministry said it would cut import duties on passenger vehicles from 25 to 15 percent. Trump had previously criticized these duties, saying they were unfair and significantly higher than U.S. duties. However the Trump administration rebuffed on the deal.

In a surprise move, the White House said it was moving ahead with 25 percent tariffs on $50 billion worth of Chinese goods. In response, Beijing implemented the 40 percent rate for U.S. vehicle imports in July. In addition, China dropped its import tariff rate on vehicles from the rest of the world to 15 percent, further antagonizing the Trump administration.

The tariffs might be reinstated if the two sides do not come to an agreement by the end of March. In the meantime, Sales of luxury cars from Tesla, Mercedes Benz and Cadillac, many of which are exported from factories in the U.S., may start to recover—at least temporarily.

Xiaoli Tian