China Tariff Deal Will Have Little Effect on Car Prices

China and the United States agreed to a temporary de-escalation of their trade war over the weekend, but the easing will do little to change car prices.

The Associated Press explains, “the U.S. agreed to drop its 145% tariff rate on Chinese goods by 115 percentage points to 30%, while China agreed to lower its rate on U.S. goods by the same amount to 10%.” The pause will last 90 days “to allow for more talks on resolving their trade disputes.”

Almost All Chinese Cars Already Banned from U.S.

The deal will have minimal impact on car prices because China doesn’t export many cars to the U.S.

China has become the center of the global auto industry in recent years. The Chinese buy more cars than any other population, and China exports more cars than any other nation. Electric vehicles (EVs) are taking over global auto production year by year, and the world’s largest EV builder is now China’s BYD.

When Chinese automakers move into a country’s market, they often come to dominate it quickly thanks to low prices and advanced technologies.

However, Chinese automakers are banned from the American market under policies enacted by the Biden administration. Commerce Department rules define Chinese-derived software as a threat to national security and Americans’ privacy.

Other companies build a handful of cars in China for export to the U.S. that don’t use Chinese-derived software, including the Lincoln Nautilus. The temporary tariff wind-down could help Lincoln parent company Ford import that vehicle at a lower rate.

While Chinese automakers don’t sell cars in the U.S., many in the industry expect them to find ways around the software ban eventually. In a new survey from Kerrigan Advisors, 76% of U.S. auto industry executives were “expecting Chinese brands to enter the domestic market.”

China Does Send Some Car Parts Here

While Chinese companies are banned from sending cars to the U.S., they do supply some parts to American automakers. After the deal is signed, automakers could import them at a lower cost.

Tesla is, according to one major study, the “most American” automaker. It uses a greater percentage of American- and Canadian-derived parts than any other automaker (federal law doesn’t yet differentiate between American and Canadian parts).

However, the company gets many interior trim pieces from China. It could see its parts cost fall at a critical juncture when Tesla’s sales have fallen dramatically worldwide.

Global Parts Tariffed Separately

Should the two countries reach a permanent deal, car parts from China would likely still be subject to a 25% tariff on all parts from outside North America.

According to Bloomberg, Treasury Secretary Scott Bessent made clear “that the tariff reductions don’t apply to sectoral duties imposed on all U.S. trading partners,” like those on car parts.

Could Help With EV Prices

The deal includes one provision that could help automakers immediately. The New York Times explains, “In early April, the Chinese government had ordered restrictions on the export of rare earth metals and magnets, critical components used by many industries, including automakers.”

The deal will “suspend or revoke” those restrictions.

Chinese minerals dominated the EV battery trade until recently. A provision that pre-dates the current Trump administration requires automakers to use more non-Chinese minerals each year in order to qualify for a $7,500 EV tax credit.