European Automakers Gain on Reports China Mulling Auto Tariff Reduction

European automakers posted solid gains Thursday amid speculation that China is preparing to slash tariffs on imported cars as the government seeks to ease tensions with the United States and avoid a damaging global trade war.

A spokesman for China's Ministry of Industry and Information Technology said late Wednesday that the new tariffs would be published "as soon as possible", with Bloomberg news reporting the levy could be cut in half -- from the current rate of 25% -- once the State Council makes its final decision in the coming weeks for the world's biggest car market.

Volkswagen AG (VLKAY) , the world's second largest carmarker, rose 2.7% in Frankfurt trading Thursday as rivals BMW AG (BMWYY) (+0.9%) and Daimler AG (DMLRY) (+0.25%) outpaced the DAX performance index. The Stoxx 600 Automobiles and Parts Index, the sector benchmark, gained 0.8% in the opening hour of European trading.

Volkswagen, which reported a surprise drop in first quarter profits Thursday, sold more than 40% of the 2.511 million vehicles it delivered globally in the three months ending in March in the Chinese market, company reports indicate, compared to around 18% for BMW. 

China said earlier this month that it would open it s market to foreign carmakers, saying it would lift caps on non-China ownership of joint ventures over the next five years. That pace isn't fast enough for U.S. President Donald Trump, however, who has consistently pressed China on its "stupid" trade practices and plans to send Treasury Secretary Steven Mnuchin to Beijing in the next few days in order to negotiate changes to trade agreements between the world's two biggest economies.

When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE - going on for years!

— Donald J. Trump (@realDonaldTrump) April 9, 2018

China's car market, however, is starting to slow, with first quarter growth coming in a 2.8%, according to the China Association of Automobile Manufacturers, which predicts only a 3% advance this year, notably slower than the 13.7% pace recorded in 2017.

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