China Flinches in Car Tariff War

Not too long ago, our esteemed President Donald Trump spouted off on Twitter that China was about to cut back on tariffs for U.S.-made cars. Many media outlets made fun of the declaration, considering Chinese and even other U.S. officials stayed silent on the issue. It’s not unusual for the POTUS to say some off-base things, so there’s a precedence there. However, this time it appears the Donald was correct.

Instead of the current 40 percent tariff on American-made cars, China may slash that figure to just 15 percent. While that might not sound exciting, it’s actually a big deal. And it means China flinched in the game of chicken.

Of course, this tariff reduction hasn’t been made official in the highly complex, sometimes almost unintelligible Chinese government. Still, the news that movement is happening in the right direction sent shares of Tesla, Ford, BMW, Daimler, and other automakers soaring.

The alternative is to make vehicles within Chinese borders. That requires foreign automakers to collaborate with a Chinese automaker. As you can imagine, the result can be all kinds of difficulties, not to mention severely eroded profit margins. To say these Chinese policies are protectionist and keep what would otherwise be competitive products from the country is stating the obvious.

Source: Bloomberg