Tariff truce prompts Chinese auto-parts makers to rethink US investment

The 90-day temporary easing of US tariffs on China has introduced a high level of uncertainty, with the Chinese auto sector weighing the short-term and long-term impact

Chinese auto-parts manufacturers are reconsidering their plans to establish production facilities in the United States, following a recent move by the Donald Trump-led US administration to temporarily reduce tariffs on Chinese goods.

 

The decision, which lowers the combined US tariffs on most Chinese imports to 30 per cent from 145 per cent for 90 days, has given exporters some breathing space but left longer-term strategies in limbo, the South China Morning Post reported on Wednesday.

 

Industry insiders noted that while lower duties make Chinese products more competitive in the short term, the possibility of a tariff hike after the truce expires has cast doubt over new deals and investment plans. 

 

Trade experts and automotive industry officials said the volatile tariff environment is complicating efforts by Chinese suppliers to pursue global expansion. Many companies have paused or slowed feasibility studies on overseas production bases due to fluctuating costs and unclear long-term pricing strategies. 

Analysts at S&P Global in a recent report also observed heightened sensitivity to tariff fluctuations among Chinese auto-parts firms, noting that the unpredictability of US trade policy is making offshore investment decisions particularly challenging.

 

Suppliers consider investment in US-based facilities

At Auto Shanghai, which concluded on May 2, multiple suppliers acknowledged that they were considering US-based facilities to shield themselves from future tariff spikes. Smart cockpit maker Autolink, backed by EV firm Nio, is one such example, having planned a Detroit factory since early 2025. Meanwhile, Fuyao Glass confirmed a US$400 million investment to expand its manufacturing footprint in Illinois, complementing its existing Ohio operations. 

Other manufacturers, including a state-backed producer of EV connectors from Henan province, are also weighing American ventures alongside operations in Vietnam and Germany. 

Despite the uncertainty, some suppliers still believe that their US clients will continue to favour Chinese-made components, such as batteries, tyres, and optical systems, if the revised tariff levels remain in place beyond the temporary reprieve.

 

 

US-China trade talks and 90-day pause

The latest agreement emerged from negotiations in Geneva aimed at defusing tensions between the world’s two largest economies, which had set off a trade war soon after President Trump took office. Trump had announced tariff measures on all of the US’ trading partners, with hefty duties specifically imposed on China. In response, China introduced retaliatory tariffs and trade measures, leading to a series of tit-for-tat actions between the two nations. 

China exported nearly 100 billion yuan ($13.9 billion) worth of automotive components to the US in 2024, ranging from electric vehicle (EV) batteries to lidar sensors and control systems, customs data show. While not all Chinese parts manufacturers were subjected to the highest 145 per cent rate imposed last month, many still faced duties averaging 70 per cent, according to data from the International Intelligent Vehicle Engineering Association. Nevertheless, the 90-day window has introduced a high level of unpredictability.  ALSO READ: US-China reciprocal tariff truce likely to narrow India's export edge 

Consultants in the automotive sector caution that firms should remain flexible in the current climate. Those with operations in other regions, such as Mexico, Thailand, or Europe, may already be better positioned to manage the ongoing volatility in global trade conditions.