TIANJIN, China/SHANGHAI (Reuters) - In the Chinese port city of Tianjin, gray market traders of American-made cars, badly stung by a scything trade war and punitive tit-for-tat tariffs, are scrambling to take advantage of an opportunity they fear may prove only temporary.

Imported vehicles are seen at a car dealership in Tianjin bonded zone, China January 2, 2019. Picture taken January 2, 2019. REUTERS/Yilei Sun

At a car “supermarket” near the city’s busy harbor, importers told Reuters they were rushing to get “Made in America” cars through customs and revving up orders after Beijing temporarily cut tariffs on U.S. autos from Jan. 1.

The activity at the port - after a freeze since China hit U.S. auto imports with a 40 percent tariff last July - illustrates how ebbs and flows in the protracted trade war between Washington and Beijing are impacting global businesses.

“Our business was harshly hit in 2018. Sales fell steeply and we were forced to hold cars in bonded zones to wait for tariffs to be cut,” said Kevin Li, a dealer at the port whose firm brings in U.S.-made luxury sport utility vehicles (SUVs).

“Now we are discussing with dealers in the U.S. to start importing more cars once again.”

The higher tariffs have hit premium carmakers who import a large portion of the vehicles they sell in China, including Tesla Inc TSLA.O, Ford Motor Co's F.N Lincoln brand, and Germany's BMW BMWG.DE and Daimler AG DAIGn.DE, which both have manufacturing in the United States.

Chinese and U.S. trade negotiators have been locked in talks in Beijing this week in a bid to end the trade tensions that have rocked markets. Those talks wrapped up on Wednesday, with hopes growing that a deal could be struck.

(U.S. car exports to China breakdown amid trade war png: tmsnrt.rs/2SDxiVD)

The two countries’ leaders struck a 90-day trade truce last month after talks on the sidelines of the G20 meeting in Argentina, which saw China’s steep levies on autos trimmed back for a three-month period until the end of March.

In the first ten months of 2018, U.S. passenger vehicle exports to China, excluding those for public transport, were just under $6 billion, down from over $8.5 billion in the same period the year before.

Since the middle of last year, when China raised tariffs, U.S. car exports to China have plunged between 35-55 percent each month versus the year before, far more steeply than in the first half of the year.

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Shortly after the Chinese announcement, Tesla, Mercedes-Benz parent Daimler and BMW cut their prices for imported U.S.-made cars to make their cars more affordable.

An official at China’s main car dealers’ association said he expected formal imports by carmakers to revive over the next few months given the lower tariffs. Reuters could not immediately confirm if numbers had already started to climb.

BUYERS RETURN

Car dealers at the port, however, said customers had started to return late last month.

“We notice significantly more customers coming since the announcement of the tariff cut on U.S.-made cars,” said Peter Liu, a dealer at the port, who imports cars from the United States including Mercedes-Benz and Land Rover SUVs.

Liu’s firm is offering 10-15 percent discount to customers to bring in much-needed cashflow after a tough six months with his cars stuck paying fees in portside parking lots to avoid the steep levies.

“The tariff cut on U.S.-made cars has pushed us to now clear our cars parked in bonded zone through customs. We already successfully submitted documents to clear two Benz GLS 450s,” Liu said.

Rival dealer Kevin Li said he was bringing 20 Mercedes-Benz SUVs through customs, making use of the tariff drop “window” to bring in cars even without firm orders.

That was a gamble, with overall demand still weak, he acknowledged.

Data shows China’s domestic car market likely contracted last year for the first time since 1990 and analysts say it isn’t likely to turn around soon.

“There is a risk that car sales won’t be that good in the first quarter, but we need to make use of the tariff drop,” he said. “We are paying for the tariff before receiving orders.”

WINDOW CLOSING?

The gray market trade in Tianjin is only a part of China’s auto market, the world’s largest, but it gives an important insight into the auto import trade. While carmakers prefer importing their own vehicles, Beijing has been encouraging alternative channels, fueling gray market growth.

This gray market channel made up roughly 14 percent of all imported cars in China in 2017, almost double the 7.7 percent in 2014, according to data from China's biggest auto importer, Sinomach Automobile Co Ltd 600335.SS.

Tianjin is the biggest port in China in terms of parallel car imports, bringing in around 70 percent of country’s overall parallel car imports, according to a Commerce Ministry report.

Dealers estimate there are more than 10,000 U.S.-made cars sitting in the port’s bonded zones.

With no guarantee the lower tariff window would not close again at the end of March, firms were rushing to bring cars in, dealers and industry insiders said.

Su Hui, a senior official at the China Automobile Dealers Association’s parallel car chamber, said it took around two months to complete the process from ordering a U.S.-made car to completing customs clearance in China.

“So there is not much time for importers,” he said.

The rush could also put pressure on customs in major Chinese ports, including Tianjin, Shanghai and Zhoushan.

Leo Liu, a Shanghai-based dealer at Yuanfang Global who sells 700 U.S.-imported cars a year, told Reuters his firm was clearing 100 vehicles at Shanghai Waigaoqiao since the tariff cut announcement.

“But there are so many uncertainties, so we need to hurry up,” Liu told Reuters.