Next Shot in the Trade Wars....China set to tax US-made car imports

By John Reed in London and Alan Beattie in Washington

China will impose retaliatory duties on US car imports in the latest sign of trade friction between the world’s two largest economies.

In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday.

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China overtook the US in 2009 as the world’s largest vehicle market, and sales there account for a substantial chunk of profits for BMW and Mercedes, who build the SUVs they sell globally in North America.

In addition to the two German premium brands, the ministry is also targeting models manufactured by General Motors, Ford Motor, Chrysler and Honda’s US unit. The individual duties will range from 2 per cent to 21.5 per cent and be imposed for two years on imported cars and SUVs with engines larger than 2.5 litres.

The action is the latest in a flurry of legal actions between the US and China, in which each country accused the other of supporting domestic industry with illicit state subsidies and challenged each other’s use of emergency blocks on imports.

Last week the US said it was taking a case against China to the World Trade Organisation, arguing that Beijing’s use of anti-dumping measuresagainst US poultry exports was illegal under global trade rules. Washington also has a similar WTO case pending against China for blocking steel imports from the US. “We are very disappointed in this action by China,” said Andrea Mead, a spokesperson for the US trade representative’s office.

China started the process of imposing anti-dumping duties on American poultry and cars in 2009, shortly after the US for the first time used a special measure to block imports of tyres from China. Beijing subsequently challenged the US’s action to block tyre imports at the WTO, but lost the case after a judicial panel ruled that Washington had acted correctly within the law.

“China can quickly initiate ‘surprise’ investigations in response to unilateral trade actions by the United States and other trading partners that it doesn’t like,” said Scott Lincicome, a trade attorney at White & Case.

Tim Reif, general counsel at the US trade representative’s office, recently told the FT that the poultry case was intended to constrain China’s use of emergency duties in the future: “China has been using antidumping and countervailing duties as a retaliatory measure. Part of the reason for bringing this [poultry] action is to prevent their use as retaliation.”

Carmakers on Wednesday sought to play down the impact on their business, pointing out that the new duties were lower than those in some other overseas markets. BMW, which makes its X3, X5 and X6 SUVs at a plant in Spartanburg, South Carolina, noted its models would be hit by a modest 2 per cent duty, compared to a 15 per cent penalty for Chrysler and 22 per cent for GM. “We are not counting on a major impact on our business in China,” the Munich-based automaker said.

Daimler said it was still studying the regulations. The German group produces its M-Class, R-Class and GL SUVs at a plant in Tuscaloosa, Alabama. China is Mercedes’ third-largest market after Germany and the US. Audi, owned byVolkswagen, does not build cars in the US. GM makes most of the cars it sells in China at local joint ventures, with imports accounting for less than 0.5 per cent of its domestic production in China. The models the US producer imports include its Buick Enclave and Cadillac SRX.

“GM and its partners are working with relevant authorities to understand the impact of the Chinese government’s decision to lift the suspension of anti-dumping and countervailing duties,” the US carmaker said, adding that it would “seek a solution consistent with a constructive global trade environment, which we believe is important to both China and the US”.

Ford said it would not be impacted by the tariff changes as it builds all of its Chinese vehicle portfolio locally, except for its Edge model, which it imports from Canada.