U.S. tariffs may negate gains Trump secured for foreign automakers in China
When U.S. President Donald Trump visited China in November, he prodded the Chinese government to make two concessions on further opening the domestic market to American as well as other foreign automakers.
Khodrocar - Now that Trump has moved to impose import tariffs on steel and aluminum, Beijing is probably no longer in the mood to deliver what it has promised.
Of the two concessions, which were disclosed by the Chinese Ministry of Commerce after Trump’s visit, one is that China would allow foreign automakers to set up wholly owned subsidiaries to build electrified vehicles in its free-trade zones.
Under existing rules, foreign automakers must form joint ventures with local partners to produce vehicles in China. Foreign automakers are also barred from owning more than 50 percent of the partnerships.
The other concession is that China would gradually lower tariffs on imported vehicles.
Both concessions mean a lot to global automakers operating in China.
Most global brands have built a substantial and sufficient manufacturing footprint for traditional vehicles in the country but they still need new plants to produce electric vehicles.
It is true that under the first concession foreign automakers would be only permitted to incorporate wholly owned enterprises in free-trade zones. But they still have plenty of sites to consider.
To promote foreign investment and trade, Beijing has opened 11 free-trade zones across China, of which six are in coastal areas. The government is on track to allow more such zones in the country.
China now charges a hefty 25 percent tariff on imported vehicles. Despite the high tariff, China’s vehicle imports still jumped 16 percent to nearly 1.25 million in 2017 as domestic demand for imported crossovers, SUVs and luxury cars remained strong.
So, however gradual it may be, reducing tariffs on imported vehicles would enable global brands to boost sales of imports in China.
Trump last week signed executive orders for steel and aluminum tariffs, which will take effect this month. Under the plans, the administration will impose import tariffs of 25 percent on steel and 10 percent on aluminum.
The U.S. has granted Canada, Mexico and Australia an exemption from the tariffs. He may give the special treatment to some other countries, too, but certainly not to China.
In 2017, the U.S.’s annual trade deficit with China reached a record high of $375.2 billion (2.4 trillion yuan), according to the U.S. Department of Commerce.
During the presidential campaign and since he took office, Trump has repeatedly singled out China for flooding the U.S. with cheap goods.
Last week, Tesla Inc. CEO Elon Musk tweeted with Trump to complain about China’s high tariffs on imported vehicles and restrictions on foreign ownership of locally incorporated joint ventures.
Musk might expect the president to help Tesla secure approval from the Chinese government on incorporating a wholly owned EV subsidiary locally.
Tesla has been in talks with the Shanghai municipal government to establish a factory since last year, but apparently has yet to make much progress.
But Musk may have reached out to the wrong person for help.
The Chinese government has openly protested Trump’s tariffs on steel and aluminum imports, and threatened to retaliate.
Beijing has little appetite to honor the two concessions it made to Trump last year to give Tesla and other foreign automakers total control of their China EV subsidiaries or to cut tariffs on imports.
Source: Automotive News China
Of the two concessions, which were disclosed by the Chinese Ministry of Commerce after Trump’s visit, one is that China would allow foreign automakers to set up wholly owned subsidiaries to build electrified vehicles in its free-trade zones.
Under existing rules, foreign automakers must form joint ventures with local partners to produce vehicles in China. Foreign automakers are also barred from owning more than 50 percent of the partnerships.
The other concession is that China would gradually lower tariffs on imported vehicles.
Both concessions mean a lot to global automakers operating in China.
Most global brands have built a substantial and sufficient manufacturing footprint for traditional vehicles in the country but they still need new plants to produce electric vehicles.
It is true that under the first concession foreign automakers would be only permitted to incorporate wholly owned enterprises in free-trade zones. But they still have plenty of sites to consider.
To promote foreign investment and trade, Beijing has opened 11 free-trade zones across China, of which six are in coastal areas. The government is on track to allow more such zones in the country.
China now charges a hefty 25 percent tariff on imported vehicles. Despite the high tariff, China’s vehicle imports still jumped 16 percent to nearly 1.25 million in 2017 as domestic demand for imported crossovers, SUVs and luxury cars remained strong.
So, however gradual it may be, reducing tariffs on imported vehicles would enable global brands to boost sales of imports in China.
Trump last week signed executive orders for steel and aluminum tariffs, which will take effect this month. Under the plans, the administration will impose import tariffs of 25 percent on steel and 10 percent on aluminum.
The U.S. has granted Canada, Mexico and Australia an exemption from the tariffs. He may give the special treatment to some other countries, too, but certainly not to China.
In 2017, the U.S.’s annual trade deficit with China reached a record high of $375.2 billion (2.4 trillion yuan), according to the U.S. Department of Commerce.
During the presidential campaign and since he took office, Trump has repeatedly singled out China for flooding the U.S. with cheap goods.
Last week, Tesla Inc. CEO Elon Musk tweeted with Trump to complain about China’s high tariffs on imported vehicles and restrictions on foreign ownership of locally incorporated joint ventures.
Musk might expect the president to help Tesla secure approval from the Chinese government on incorporating a wholly owned EV subsidiary locally.
Tesla has been in talks with the Shanghai municipal government to establish a factory since last year, but apparently has yet to make much progress.
But Musk may have reached out to the wrong person for help.
The Chinese government has openly protested Trump’s tariffs on steel and aluminum imports, and threatened to retaliate.
Beijing has little appetite to honor the two concessions it made to Trump last year to give Tesla and other foreign automakers total control of their China EV subsidiaries or to cut tariffs on imports.
Source: Automotive News China
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