China Slaps U.S. Auto Industry With New Tariffs

China unexpectedly imposed antidumping and antisubsidy tariffs on imports of sport utility vehicles and midsize and large cars from the U.S. on Wednesday evening.

The new tariffs, totaling up to nearly 22 percent of the import prices, are more symbolic than anything, as American imports to China have already been seriously limited by other taxes and tariffs already in place that raise the retail prices of American-made vehicles by about three times what the same cars would sell for in the United States.

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Still, the move can only escalate trade hostilities between China and the United States, as automobiles are one of the most politically sensitive international trade industries. China’s move drew immediate criticism from President Barack Obama’s administration.

“We are very disappointed in this action by China,” said Carol Guthrie, a spokeswoman for the Office of the United States Trade Representative. “We will be discussing this latest action with both our stakeholders and Congress to determine the best course going forward.”

The Commerce ministry of China, which made the decision after conducting a two-year trade investigation into American exports, gave no explanation for the imposition of new duties. Ministry officials could not be reached for comment.

The new duties would mainly affect General Motors (NYSE:GM), which exports Cadillac SUVs and cars to China; Chrysler, which exports Jeeps; BMW, which, though a German company, exports SUVs made in South Carolina; and Daimler, also of Germany, which exports Mercedes SUVs made in Alabama.

Already-high Chinese tariffs and taxes mean the vehicles are sold only in the thousands or even hundreds in China, and only to the most affluent.

American officials have previously examined the methodology of China’s two-year-old antidumping and antisubsidy investigation into American-made automobiles and have found “significant problems,” said Ms. Guthrie, the United States trade spokeswoman.

China, which recently celebrated its 10th anniversary as a member of the World Trade Organization, may now be in violation of WTO rules after Wednesday’s action.

The trade organization puts many limits on a member’s ability to impose antidumping and antisubsidy measures, particularly on goods from other WTO countries that have been declared as having market economies, like the United States.

Given that the prices of American vehicles are already higher in China than in the U.S., even before China’s tariff and tax mark-ups, it might be hard for China to demonstrate “dumping.”

China’s accusation of subsidies may be linked to earlier comments by Chinese officials questioning whether the Obama administration provided too much federal assistance to GM and Chrysler during the global financial crisis.

China began its automotive trade case just two days after President Obama imposed steep tariffs on surging imports of Chinese tires in September 2009. After an inquiry, the WTO ruled earlier this fall that the American tariffs on tire imports had complied with international trade rules.

The new tariffs China imposed Wednesday will be an 8.9 percent antidumping duty for GM vehicles, 8.8 percent for Chrysler, 2.7 percent for Daimler, and 2 percent for BMW. The ministry imposed antisubsidy duties of 12.9 percent for GM and 6.2 percent for Chrysler.

The new duties will be calculated on vehicle prices after China’s existing 25 percent import tariff for all family vehicles has been added, meaning buyers will be paying the new taxes on other Chinese taxes in addition to paying the new taxes on the value of the car.

The new duties will apply to SUVs and cars with engines of 2.5 liters or greater imported from the U.S., and will be in place for two years, through December 14, 2013.

GM said in a statement that it was “working with relevant authorities to understand the impact of the Chinese government’s decision,” adding that it would “seek a solution consistent with a constructive global trade environment, which we believe is important to both China and the U.S.”

GM is a leading producer of automobiles in China, and said in its statement that imports from the U.S. represented “less than half of 1 percent of its domestic production in China.”

On the other hand, Chrysler’s sales in China are exclusively imports. The company was not allocated any factories in China when Daimler dissolved its merger with Chrysler in 2007.

As a result, Chrysler’s sales in China are miniscule — only 13,686 Jeeps, 10,970 Dodges and 284 Chryslers in the first 10 months of this year, according to LMC Automotive, a British consulting firm.

Bill Russo, a former Chrysler executive who oversaw the company’s operations in China until 2008, is now an industry consultant in Beijing, and says the new duties can’t be intended to help Chinese automakers.

Imported SUVs and cars cost so much more than Chinese models that “people are not shopping these on price,” said Russo. “No local company makes a product even close.”

Existing taxes and tariffs, including value-added taxes and a system of sales taxes that range from 1 percent on subcompacts to 40 percent on large SUVs and sports cars, mean imported models already cost much more in China compared to their home markets.

It is more likely that the Chinese Commerce Ministry’s announcement was meant as a tit-for-tat retaliation to the Obama administration beginning to challenge Chinese trade policies more aggressively.

A recent preliminary decision by the U.S. International Trade Commission concluded that imports of Chinese solar panels had hurt American solar panel manufacturers, moving the U.S. one step closer to imposing antidumping and antisubsidy duties on Chinese solar panels early next year.

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