Automobile company stocks and car-related exchange traded fund pulled ahead Tuesday as China takes steps to reduce tariffs on U.S. automakers.
The First Trust NASDAQ Global Auto Index Fund (NasdaqGM: CARZ) gained 0.3% Tuesday.
Strengthening the global auto industry, China moved to cut import tariffs on American-made cars to 15% from the current 40%, Bloomberg reports.
Shares on a number of global automakers, including Ford Motor, General Motors, BMW, Volkswagen and Daimler, among others, gained speed on the announcement. However, potential investors should keep in mind that nothing has been finalized and conditions could still change.
The move is seen as a show of good faith in attempts to de-escalate the trade war between the U.S. and China, which was threatened following the arrest of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou in connection with Iran sanctions violations.
“Last week, events seemed to conspire to throw the truce into disarray, but the underlying incentives of both sides at the moment are to try to maintain that truce,” Freya Beamish, chief Asia economist at Pantheon Macroeconomics Ltd., told Bloomberg. “Now we are seeing the possibility that China will come through with reductions of tariffs on U.S. autos and that’s another good, concrete step.”
Top Chinese and American trade officials continued to speak Tuesday morning Beijing time, showing the dialog between the two countries on trade continues despite the ongoing tension over Huawei.
Carmakers are rejoicing on the tariff cuts. BMW previously stated that tariffs would cost the company 300 million euros, or $340 million, this year alone. Daimler also highlighted tariffs as the key reason for a profit warning in June. Car companies that manufacture in the U.S., like Mercedes-Benz and BMW, both warned of lower profits this year as tariffs forced them to raise prices in China.
China previously raised tariffs on American-made cars to 40% as part of a retaliatory response to U.S. measures. Consequently, car sales in the world’s second largest economy has dipped for a sixth consecutive month in November and was close to its first annual drop in at least two decades.
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