In an unexpected, but notable, victory for President Trump's aggressive trade agenda and exporters of cars around the globe, China's Ministry of Finance announced Tuesday morning that it would slash passenger car duties to 15%, further opening up the market that’s been a key target of the U.S. in its trade fight with Beijing. This comes less than a month after China decided to ease restrictions on foreign competition in its auto sector and also address some of the US's concerns about intellectual property theft.
The reduction follows a truce that Treasury Secretary Steven Mnuchin announced during a Sunday appearance on "Fox News Sunday". In response, the US has continued to reverse its policy of pressuring telecom giant ZTE, with Trump taking steps to rescue it.
“This is, without a doubt, positive news,” said Juergen Pieper, Frankfurt-based head of automobiles research at Bankhaus Metzler who spoke with Bloomberg.
Investors would agree, with European auto stocks gapping higher on the news.
But while the administration will no doubt rush to claim this as a victory, nobody expects the tariff cuts to be a gesture of good faith on China's part: The US is now also expected to make a concession, perhaps in addition to reducing pressure on ZTE. Though for Trump, caving on ZTE is still a pretty big deal, even as the administration has been adamant about framing it as a national security issue and not a trade issue.
"You can’t completely disregard the fact that there are certain imbalances in China’s favor. This could be a signal that if one side is making concessions, it could lead to the Americans easing some of their pressure as well.”
Meanwhile, according to Bloomberg, the import duty on car parts will fall to 6%, from 25%. But Bloomberg warns that the cuts are largely symbolic, since they will only impact about 4.2% of car sales - at least for now (about 29 million cars were sold in China last year, and as tariffs fall, foreign car buying could become more commonplace).
China's President Xi Jinping and his Vice Premier Liu He both advised that China would start implementing market liberalizations particularly in its automobile market in the coming months. The decision also comes after China announced over the weekend that China would end its anti-dumping investigation into sorghum. It has also signaled that there might be a review of Qualcomm's bid to acquire NXP Semiconductors, which would be tantamount to another olive branch.
US and European carmakers were, understandably, delighted about China's decision.
Ford and Porsche, maker of the Cayenne and Panamera car models, welcomed the announcement.
"Chinese customers will have a chance to enjoy an even optimized price and pursue more personalized options when buying a car," Porsche said in a statement in China.
As Reuters reminds us, Trump has said that China's 25% auto import rate was "stupid trade", while Tesla's Elon Musk has seemingly never stopped cheering about China's move toward auto-market liberalization, something that would greatly benefit Tesla, which may be reaching saturation in the US.
In a foreshadowing of this morning's trade news, President Trump tweeted late last night that "under our potential deal with China, they will purchase from our Great American Farmers practically as much as our Farmers can produce."
Under our potential deal with China, they will purchase from our Great American Farmers practically as much as our Farmers can produce.— Donald J. Trump (@realDonaldTrump) May 21, 2018
The Trump administration isn't always reliable - particularly when it comes to their comments about Chinese trade relations (recall when Larry Kudlow said talks were making progress, only for the Chinese to publicly embarrass him by declaring that there hadn't been any talks). But by scaling back the import duty, China has given the Trump administration a boost of confidence, and a badly needed foreign policy win that appears destined to calm choppy markets. That is, unless China - or the US - abruptly decide to break off the talks. Or something else happens - tensions in the Pacific, perhaps, or maybe North Korea - that sets the budding detente back.