US-China tariff reduction: Impact on auto-parts exports

[WORLD] A temporary reduction in tariffs on Chinese imports is expected to keep American interest in Chinese auto parts strong, prompting some mainland manufacturers to reconsider plans to establish production facilities in the United States.

The reconsideration comes as Chinese firms weigh the costs of localized production against the newly reduced tariffs. Industry insiders suggest that while establishing US facilities would mitigate long-term trade risks, the upfront investment and operational challenges—such as higher labor costs and regulatory hurdles—may no longer justify the move in the short term. "The tariff reprieve buys time for companies to reassess their supply chain strategies without rushing into costly relocations," said a Shanghai-based trade analyst.

Following negotiations in Geneva on Monday, Washington agreed to lower its combined 145 per cent tariffs on most Chinese goods to 30 per cent for a 90-day period. The move marks a de-escalation in trade tensions that have persisted since former US President Donald Trump introduced sweeping reciprocal tariffs targeting key trading partners. The easing of duties is anticipated to provide short-term relief to strained global supply chains and help lower costs for both consumers and businesses.

The temporary tariff cut also aligns with broader efforts to curb inflation in the US, where auto part prices have risen by nearly 18% since 2022 due to supply chain disruptions. Economists suggest that reduced tariffs could ease price pressures, particularly in the automotive repair and manufacturing sectors, which rely heavily on Chinese components. However, some warn that the relief may be limited if the tariffs snap back after the 90-day window, forcing businesses to revert to higher-cost alternatives.

However, not all sectors stand to benefit. High tariffs remain in place for critical industries including automobiles, steel, aluminum, and pharmaceuticals, which were excluded from the temporary agreement.

The exclusion of these industries reflects lingering geopolitical sensitivities, particularly around electric vehicles (EVs) and advanced technology. The Biden administration has emphasized protecting domestic EV production as a national priority, with recent legislation like the Inflation Reduction Act offering subsidies for US-made clean energy products. Chinese EV battery makers, despite holding a dominant global market share, now face tougher barriers to entry in the US, reinforcing the divide between sectors granted relief and those still under heavy trade restrictions.

The economic toll of the tariffs was already becoming evident. Last week, the Port of Seattle reported no container ships docked at berth—an alarming signal seen as fallout from the trade barriers. The 90-day reprieve has been cautiously welcomed across multiple sectors, though uncertainty lingers as negotiations continue in search of a longer-term solution.

Logistics experts note that the tariff reduction could alleviate bottlenecks at major US ports, where imports of Chinese goods had slowed dramatically in recent months. "The Port of Seattle’s situation was a canary in the coal mine," said a supply chain strategist. "If the tariff easing holds, we could see a rebound in shipping activity by Q3, but much depends on whether both sides can build on this momentum."

Analysts noted an optimistic tone from both US and Chinese delegations during the Geneva talks, with officials from both sides acknowledging that maintaining tariffs above 100 per cent would have effectively halted bilateral trade.

Vendors expressed support for the temporary truce, citing continued demand from American buyers. In 2024, China exported nearly 100 billion yuan (US$13.9 billion) worth of auto parts to the US, including electric vehicle batteries, lidar systems, and drive control units, customs data shows. The sizable volume underlines the strategic value of the US market for Chinese manufacturers and how tariff policy may influence future production strategies.