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China has implemented an additional 10% tariff on vehicles with larger engines imported from the United States as trade tensions between the two economic giants persist. The tariff, which took effect on Monday, affects vehicles with engines larger than 2.5 liters. This move comes in response to the Trump administration’s broad levies on Chinese goods, which the two countries have failed to negotiate away.
According to Chinese state broadcaster CCTV, the new tariff increases the total duty on these vehicles to 25%, making it more expensive for American automakers to sell such cars in China.
Limited Impact on Overall Exports
Although the new tariffs target a specific segment of the auto industry, their overall impact on vehicle exports is relatively small. Automakers like General Motors (GM) and Ford Motor Company already produce most of their vehicles for the Chinese market through joint ventures with local partners.
Data from China’s customs department shows that the total value of vehicles with larger engines exported from the US to China was approximately $3.1 billion last year. This amount represents a fraction of the vehicles produced and sold in China by American manufacturers.
A Blow to Struggling American Automakers
The additional tariff is expected to put further pressure on American automakers, particularly GM and Ford, which are already facing challenges in the Chinese market. The rise of domestic electric vehicle (EV) manufacturers, led by BYD Co., has intensified competition. Chinese consumers are increasingly shifting toward locally made EVs, leaving traditional automakers struggling to maintain their foothold.
Last year, GM reported over $5 billion in charges and financial write-downs related to its difficulties in China. The added tariff may make it even harder for these companies to sustain their presence in the world’s largest car market.
German Carmakers Also Affected
While the new tariff primarily targets American automakers, some European car manufacturers will also feel the effects. According to Bloomberg Intelligence analyst Michael Dean, Mercedes-Benz and BMW are moderately exposed to China’s retaliatory tariff.
“Mercedes – and to a lesser extent BMW – are modestly exposed to China’s retaliatory incremental 10% tariff on SUVs and pickups imported from the US. Both German brands have made the US their global production hubs for SUVs, yet since 2022, the high-margin BMW X5 has been produced locally. For Mercedes, the additional tariff may reduce Ebit by 1.5% in 2025, without mitigating factors such as raising prices (made harder given an average discount to list price is already about 15% for SUVs),” said Dean.
GM’s Strategy to Retain Chinese Customers
In an effort to appeal to high-end Chinese buyers, GM introduced a premium import service called Durant Guild in 2022. The service offers luxury vehicles such as the GMC Yukon and Chevrolet Tahoe SUVs, both of which have engines of 3 liters or more.
However, with the new tariff in place, the cost of these imported vehicles is expected to rise, potentially making them less attractive to Chinese consumers who have alternatives from domestic and European brands.
Potential for Diplomatic Resolution
Despite the escalating trade dispute, there is still a possibility of negotiations between the US and China to ease tensions. Former President Donald Trump, who initially imposed tariffs on various Chinese goods, had previously threatened to impose similar tariffs on Canada and Mexico but later delayed them following negotiations.
Trump has stated that he plans to hold a call with Chinese President Xi Jinping soon. Meanwhile, China’s Ministry of Foreign Affairs has urged dialogue and consultation to prevent a full-blown trade war. If both sides come to an agreement, there could be a rollback or revision of tariffs in the future.
