China Imposes Duties on US-Built Vehicles

The Chinese government has imposed new anti-dumping measures on US-built vehicles with engine displacements of 2.5 litres or larger. The measures are effective from today (15 December) and will remain in place until 14 December 2013, state-owned media agency Xinhua reports. IHS Automotive forecasts show that less than 1% of the total light-vehicle market in China will be made up of US-built imported models in 2012. As a result, the actual impact of the new tariffs will be limited and will not affect models produced by the likes of General Motors (GM) in China. "Of over 19,000,000 light vehicles that we forecast will be sold in China during calendar year 2012, only about 120,000 would be production-sourced in the US. That's less than 1%", says IHS Automotive's John Brennan.

Zhu Bin, IHS Automotive's light-vehicle sales analyst in Shanghai, says that the models most likely to be affected by the move are the Buick Enclave, the Cadillac CTS, and the Jeep Cherokee. However, the best-selling Cadillac model in China, the SRX sport utility vehicle (SUV), is made in Mexico, so that will not be affected, Zhu Bin adds. Other models currently imported from the US to China are either sold in very small volumes or the extra duty imposed on them is too low to have a significant impact on their price.

IHS Automotive's Latest AutoInsight Forecast

In 2010 a total of 74,300 models built in the US and imported into China were sold, while in 2011 that number is expected to have risen to 106,064, IHS Automotive data show. In 2012 the number of models produced in the US and sold in China is likely to be around 120,974 units, according to our forecasts. The models most affected by the increased tariffs will be SUVs with engine displacements of 2.5 litres and bigger, mainly GM's Buick Enclave, the Cadillac CTS, and the Jeep Cherokee. The impact on the total market will be minimal.

History of Tariff War Between US and China

On 24 May China appealed to the WTO against a 35% tariff imposed on Chinese-made tyres sold in the US. However, the appeal was rejected. The tariff was originally set to be 35% during the first year, 45% in the second year, and 55% in the third year. However, US president Barack Obama intervened in 2009 and reduced the rates to 35% in the first year, 30% in the second year, and 25% in the third year. Nevertheless, Chinese tyre-makers and those that are contracted to make tyres for US companies in China will be severely affected.

Another petition has since been launched against Chinese-made steel wheels, which have been made subject to anti-dumping tariffs in the US (see China: 26 April 2011: China to Counter US Anti-Dumping Probe Into Chinese-Made Steel Wheels). China has appealed against these measures.

In May, the Chinese administration began to make accusations that large cars were being "dumped" by the US in China (see China: 6 May 2011: China Accuses US of "Dumping" Large Cars). China's Ministry of Commerce claims that certain vehicles made in the US are being imported into China and sold at discounted prices. It says that models made by GM, Chrysler, Mercedes, Honda, and BMW have dumping margins that range from 2% to 21.5% and these models now have tariffs imposed on them accordingly.

Outlook and Implications

Despite the frenzy surrounding the tariffs being imposed on US-built models sold in China, the data show that the actual impact of the move will not be dramatic. China's light-vehicle sales are expected to hit 19 million units in 2012, of which a tiny percentage—less than 1%—will be models built in the US and imported into China. Although gm wants to increase sales of its Cadillac brand in China, the brand is a small player in the country compared with the automaker's other brands and the SRX, which is Cadillac's best-selling model in China, is built in Mexico and so is likely to avoid the new tariffs. Meanwhile, the Buick Enclave SUV is expected to sell less than 10,000 units in China during 2012, while the Jeep Cherokee is expected to sell around 5,600 units in China next year. The new tariffs will raise prices for buyers in China, but buyers of these models already pay a hefty 25% import duty. These three models are the main ones that will be affected by the new tariffs. "But for the other models imported from the US, the effect will be limited, either because the tariff is as small as 2% or 4% (for BMW, Daimler, or Honda Acura), or because the volumes of those models are really very low", says Zhu Bin.

The Chinese government is also on a drive to reduce pollution and in March this year proposed draft regulations stipulating higher taxes on vehicles with engines over 2 litres. The draft regulations have now been passed and will come into effect from 1 January 2012. China's top legislature, the National People's Congress, voted in February to adopt a new law for vehicle taxation, which aims to encourage the use of smaller engines. The new law will charge the following taxes per annum: 1.0-litre engines will be taxed between CNY60 (USD9.10) and CNY360; 1.0–1.6-litre engines will be taxed between CNY300 and CNY540; 1.6–2.0-litre engines will be taxed between CNY360 and CNY660; 2.0–2.5-litre engines will be taxed between CNY660 and CNY1,200; 2.5–3.0-liter engines will be taxed between CNY1,200 and CNY2,400; 3.0–4.0-litre engines will be taxed between CNY2,400 and CNY3,600; and engines of 4.0 litres and above will be taxed between CNY3,600 and CNY5,400. The law intends to tax cars according to engine size and is dubbed the "usage law". Under the old regulations, the same levy was charged for all motor vehicles, regardless of engine capacity. Bai Jingming, the deputy director of the Research Institute for Fiscal Science under the Ministry of Finance, said that the tax differences could provide an incentive for consumers to choose cars with smaller engine capacities to conserve energy. Separately, the purchase tax for passenger cars with engines of 1.6 litres or below rose to 10% from 1 January 2011 after the government ended an incentive policy under which the tax was set at 7.5%. In January 2009, in response to the impact on the auto industry of the international financial crisis and in a bid to revitalise China's auto industry, the State Council reduced the tax on vehicle purchases from 10% to 5%, and then increased it to 7.5% in 2010 for vehicles with engines of 1.6 litres or below.

The anti-dumping measure against US-built vehicles with engines over 2.5 litres takes the Chinese government's policy a step further. China is likely to get stricter on emissions as well as retaliating against what it sees as protectionist policies against products made in China and sold elsewhere.