By Trefor Moss 

SHANGHAI -- China will reduce its import tariff on autos from 25% to 15% starting July 1 -- a concession to U.S. trade complaints, but one that will pay the biggest benefits to German auto makers and Chinese consumers.

Import tariffs on auto parts will also be cut -- to 6%, down from between 8% and 25%, the Customs Tariff Commission of the State Council, China's cabinet, said Tuesday. China's Ministry of Finance called the action an "important measure in further opening up" the Chinese economy.

To evade tariffs, foreign auto makers build most of their cars for the Chinese market locally, through joint ventures with Chinese partners. Even so, China imported 1.2 million cars last year, according to the China Automobile Dealers Association, or roughly 4% of vehicles sold in the world's largest auto market.

BMW AG imported the most cars -- 187,000 -- according to the association, followed closely by Daimler AG's Mercedes-Benz. Though both companies manufacture in China, about one-third of their sales here are high-end imports.

The German auto makers were at risk of becoming collateral damage in the U.S.-China trade spat, with many of the sport-utility vehicles which BMW and Mercedes export to China built at American plants. Neither company immediately responded to questions.

Tesla Inc. is another likely beneficiary. The company reported China sales of over $2 billion last year, which analysts said equated to over 20,000 imported vehicles (the company doesn't break down its unit sales).

Earlier this month, Tesla registered a company in Shanghai as a precursor to setting up a factory here, but it is unlikely to produce its first China-built car for at least three years. The tariff cut would slash several thousand dollars off the price of an imported Model S, which currently starts at around $121,000 in China.

Most other auto makers are far less reliant on imports, however.

General Motors Co. barely exports to China at all. Ford Motor Co. imported over 54,000 premium Lincoln vehicles, as well as just under 19,000 Ford vehicles, in 2017 and stands to benefit from the cut in the short term.

"We welcome the new tariff policies," said a Ford spokesman.

However, the company is due to start manufacturing Lincolns locally in China next year, and says it plans to build more Ford vehicles locally as well.

Tuesday's announcement comes amid high-level trade negotiations between the U.S. and China designed to avert a trade war between the world's two largest economies. U.S. Treasury Secretary Steven Mnuchin said Sunday that settlement talks were bearing fruit, and that "we're putting the trade war on hold."

The auto sector was a major focus of U.S. Trade Representative Robert Lighthizer's recent Section 301 investigation into Chinese trade practices. He alleged that China doesn't provide a level playing field for foreign auto makers.

China had threatened to hike its tariff on autos and other U.S. products by 25% in April, in response to proposed U.S. tariffs on Chinese exports. In an apparent attempt to defuse trade tensions, Chinese President Xi Jinping then pledged last month to cut tariffs on autos, and to ease foreign-investment restrictions in the country's auto sector.

At Auto China in Beijing earlier this month, Audi Chief Executive Rupert Stadler said reduced tariffs would be great news for all premium car companies. "Lower import tariffs will benefit our sales in China," he said, noting that there was "big potential" for imports to grow. Only around a 10th of Audi's China sales are imports.

With the price of imports going down, the price of locally produced high-end vehicles would also be forced down, Yale Zhang, managing director of Shanghai consultancy Automotive Foresight.

"The consumers will be the ones who benefit the most," said Mr. Zhang.

Though the U.S. tariff on autos is only 2.5%, it would have been unreasonable to expect China to lower its tariff to anything near that level, Mr. Zhang said, especially since the existing 25% tariff had previously been approved by the World Trade Organization.

Liyan Qi contributed to this article.

Write to Trefor Moss at Trefor.Moss@wsj.com

(END) Dow Jones Newswires

May 22, 2018 08:37 ET (12:37 GMT)

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