China Toughens Trade Stance with Tariffs

Higher Gear

China's complaints about American car imports aren't new.

It launched its investigation shortly before U.S. President Barack Obama visited in November 2009, in apparent retaliation for U.S. duties on Chinese-made steel pipes used in the oil and gas industry.

At the time, the Ministry of Commerce said it was investigating incentives and tax breaks granted by the U.S. federal government and the state of Michigan, home to the U.S. auto industry.

Dec. 14, 2011's announcement came amid Chinese anger over a U.S. investigation into whether China unfairly subsidises its solar panel makers. But China's previous experience with trade disputes have taught its officials the lesson that American firms can be allies in opening American markets.

In recent years, the U.S. poultry industry lobbied actively against a Congressional ban on negotiating with China to import Chinese cooked chicken -- imposed after Chinese food safety scandals -- because they feared losing the lucrative Chinese market for chicken feet.

China's choice of targets is limited by its reluctance to alienate Chinese consumers with higher prices for imported foodstuffs or raw materials.

The value of soy and oilseeds imports from America so far this year is triple that of cars, at about $12 billion. Making imported cotton, chemicals or grains more expensive would also only contribute to inflation in China.

Imported cars, however, appeal mainly to China's wealthiest consumers, who aren't very price sensitive to begin with.

Liu Hongyan, shopping at a Beijing Cadillac dealership on a clear and windy Dec. 15, 2011, shrugged off the possibility that customers like him might have to pay more for cars.

"I think it doesn't really affect people of our class and status who buy these types of cars, because the tariff rate only takes up a small percentage of the cost," he told Reuters.

"If you like the car it doesn't matter."

The automakers themselves are more vulnerable, although their problem isn't the direct impact on imports, which only make up 9 percent of auto sales in China.

"Chrysler is a bit vulnerable as it's been counting mostly on imported models to drive its China sales, but the impact on GM and others is very limited as imports accounts a small portion of the tally," said Sheng Ye, associate research director for the Greater China region at industry consultancy Ipsos.

Instead, their Achilles heel is their business in China -- the world's biggest market for cars, and one of the only growth areas of scale.

With regulators already delaying permission to expand production unless automakers agree to transfer branding rights and technology, none of the big automakers will relish being left out in the cold.