China cuts tax on US vehicles in move to soothe trade tensions

Beijing: China will remove the punitive duty on automobiles imported from the US for three months in an effort to defuse trade tensions with the world’s biggest economy.

China will remove the 25 per cent tariff it had imposed in a tit-for-tat measure, the finance ministry in Beijing said in a statement Friday. Earlier this week, Bloomberg News reported that China was considering cutting duties on US imports, a step already announced by President Donald Trump in a tweet.

The temporary tax reduction comes as the country heads for its very first vehicle sales decline in 28 years amid the trade war and an economic slowdown that’s undermining consumption momentum. The 25 per cent levy on all vehicles made in US was the backbone of China’s response to a trade war instigated by Trump as he seeks to reset trade relations and spur manufacturing in the US.

Car sales in China have fallen for six straight months after decades of almost uninterrupted growth. While there were other factors, the tit-for-tat jabs between the world’s biggest economies have played a role. The move by China would reduce tariffs on cars made in the US to 15 per cent from the current 40 per cent, in line with what other countries pay.

China’s decision may provide a respite for American carmakers such as Tesla Inc. German carmakers such as BMW AG and Daimler AG would also benefit as they bring to China US-made cars.

Longer-term, China has a lot to gain from free trade in autos as Chinese manufacturers such as Guangzhou Automobile Group Co. and Geely Automobile Holdings Ltd. look to move overseas. The US currently charges a 27.5 per cent tax on imported cars from China after adding a 25 per cent additional tariff during the trade row.

Foreign carmakers have long pleaded for freer access to China’s auto market, while its own manufacturers are trying to expand abroad. In April, China announced a timetable to permit foreign companies to own more than 50 per cent of local vehicle-making ventures.