China is considering proposals to cut import duty on passenger cars by about half, according to people with direct knowledge of the matter,
A lower tariff would help German luxury automakers BMW, Mercedes-Benz and Porsche because their imported models would become more competitive against locally manufactured vehicles. Lexus would also benefit as the only premium Japanese marque that doesn’t manufacture in China or hasn’t announced plans to do so.
The State Council, or China’s cabinet, is weighing proposals to reduce the levy on imported cars to 10 percent or 15 percent, said the people, who asked not to be identified as the information isn’t public. The current rate is 25 percent.
An announcement on the decision could be made as soon as next month, they said. The finance ministry didn’t respond to a fax seeking comment.
The move comes as investors and executives fret about a trade war between China and the U.S. China has responded to U.S. President Donald Trump’s tariff threats with similar force -- though at the same time it has signaled opening up its finance and auto industries. Trump said on Tuesday that Treasury Secretary Steven Mnuchin will depart for China within days.
China is heeding decades-long pleas from carmakers for better access to its auto market, as its own manufacturers prepare to expand abroad. Last week, China announced it will permit foreign automakers to own more than 50 percent of local ventures, giving a boost to global companies seeking to capture a greater share of the world’s largest car market.
Earlier this month, President Xi Jinping repeated the nation’s commitment to reduce import tariffs on vehicles this year, without disclosing the magnitude of the proposed cut.
The high tariff - versus a 2.5 percent U.S. levy - has been a focus of U.S. President Trump's administration amid a simmering trade standoff between Washington and Beijing. Trump has said China's 25 percent tariff amounted to "stupid trade."
A major reduction in tariffs could prompt overseas automakers, especially luxury brand names, to import more cars made overseas into the Chinese market, boosting their competitiveness by helping close a price gap on local rivals.
China's main auto body said earlier this month a reduction to a 5 percent import tariff could knock around one-fifth off the domestic industry's profits, though it did not expect the tariff cut to be that severe.
While cars imported from the U.S., such as Tesla models, will also benefit, they may still face an additional hindrance. As part of the trade spat, China has threatened to slap an additional 25 percent import duty on cars made in the U.S., which would come on top of any other tariffs.
China imported 1.22 million vehicles last year, or about 4.2 percent of the country’s total sales of about 28.9 million automobiles.
Reuters contributed to this report