China Just Gave a Big Concession to Foreign Automakers. It’s Likely to Please Tesla—And Trump

April 17, 2018, 12:21 PM UTC

One of President Donald Trump’s main gripes about China’s trade conditions has been about cars—he doesn’t like the fact that China levies a 25% tariff on imported American cars, while Chinese-made cars only attract a 2.5% tariff when they enter the U.S.

Now, China’s government has made an auto-related announcement that might go some way toward pleasing the U.S. president: China is going to allow full foreign ownership of automakers on its turf, within five years.

At the moment, overseas carmakers that want into the Chinese market have to either import their wares or form 50-50 joint ventures with local, state-owned partners.

The latter option avoids those big tariffs, but it means giving those local partners access to the intellectual property needed to make the cars. Companies such as Volkswagen (VLKAY) and General Motors (GM) abide by these rules in order to tap the Chinese market.

Tesla (TSLA) seems likely to benefit from the new move, as it has shunned the joint venture option—its insistence on going it alone in China, with a production facility in the Shanghai free trade zone, seemed certain to earn it that 25% price bump, but no longer.

According to the Associated Press, the Chinese authorities will start by eliminating limits on foreign ownership of electric vehicle producers this year. In 2020, the same limits will be removed for makers of commercial vehicles, and passenger vehicles will follow a couple years later.

The move suggests particular confidence in China’s electric car industry. The country said last year that it was moving towards complete electrification of its automobiles, and would be phasing out the production and sale of cars that run on fossil fuels.

Some have suggested that China’s electrification push, combined with its insistence on joint ventures, have given the country’s electric vehicle industry an unfair advantage.