US-EU Trade Strategies Align: Europe to Hit Chinese Electric Cars with Tariffs

The European Union is set to follow the United States' lead by imposing punitive tariffs on Chinese electric vehicles starting July 4th, aiming to protect European manufacturers from what they deem unfair subsidies in China

by Sededin Dedovic
US-EU Trade Strategies Align: Europe to Hit Chinese Electric Cars with Tariffs
© Miles Willis / Getty Images

The European Commission is threatening to do what the German government and some other EU member states wanted to prevent: starting July 4th, they want to impose punitive tariffs on electric cars made in China, writes DW.

The European Commission stated that this is a "protective measure for European electric car manufacturers" and a response to "unfair subsidies in China." The EU is thus following the example of the USA, which now imposes 100 percent import duties on electric vehicles from China.

European Commission Vice President Margaritis Schinas presented the punitive action in Brussels and said the commission has "established contacts with Chinese authorities to discuss possible solutions." Only if these talks, planned according to World Trade Organization (WTO) rules, are unsuccessful by July 4th, will the punitive tariffs be imposed, temporarily increasing the customs duties.

Temporarily, because the 27 EU member states have not yet given the green light. Trade ministers are expected to vote on this by November 2nd. Sweden, Hungary, the Czech Republic, Slovakia, and Germany oppose punitive tariffs for various reasons, while France and Spain insist on them to protect their domestic producers from cheap competition.

Chinese electric cars are on average 20 percent cheaper than comparable European products. The German government previously argued that punitive tariffs in the crucial electric car industry would only provoke an unwanted reaction from China, potentially resulting in a real trade war causing greater harm.

BYD electric cars on April 05, 2024 in Berlin. BYD is a Chinese manufacturer that went from making solar panels to electric cars© Sean Gallup / Getty Images

"E-cars need to become cheaper in Europe through increased competition, open markets, and significantly better production conditions in the EU, not through trade wars and market closures," said German Transport Minister Volker Wissing (Liberal Democratic Party, FDP) in Berlin.

China rejects accusations

China's reaction did not take long: a spokesman for the Chinese Ministry of Foreign Affairs said in Beijing that the EU is violating international trade rules and market economy principles. "Protectionism has no future.

Open cooperation is the right path," said Lin Jian. Unsurprisingly, Chinese state-controlled car manufacturers rejected the measures threatened by the EU and announced they would stay in the European market. China charges a 15 percent import tariff on electric cars from Europe.

This tariff could dramatically increase in the future. Retaliatory measures in other economic sectors cannot be ruled out.

Affected are Chinese manufacturers and Tesla

What can exporters from China now expect in the European market? The EU charges different levels of punitive tariffs for each manufacturer, depending on the companies' willingness to cooperate during the EU's months-long investigations.

In the most extreme case, a punitive tariff of 38.1 percent is foreseen. Additionally, there is the regular import tariff of 10 percent for all vehicles from China. This makes a total of 48.1 percent tariffs on the import of certain vehicles from China.

The world's largest manufacturer, China's BYD, should, in addition to the regular tariff rate, pay a punitive tariff between 17 and 20 percent. The American manufacturer Tesla, which produces cars in Shanghai for export to Europe, is also affected.

What impact will these punitive tariffs have on prices in Europe?

The expected market share of imported electric cars from China this year is 15 percent. The Kiel Institute for the World Economy calculated that around 500,000 electric cars from China should be exported to Europe this year.

Punitive tariffs could reduce this number by a quarter, to 375,000. European manufacturers could likely fill the gap, selling more in Europe instead of exporting worldwide. The shortage of supply could lead to higher car prices for consumers.

And what about the green transition in the EU?

Does the European Commission consider a smaller supply of electric cars a good idea, given that they are urgently needed for the climate transition in EU transport? Answering this question back in October, when the procedure against China was initiated, European Commissioner for Economy Valdis Dombrovskis said that electric cars are fundamentally needed, but competition must be fair.

That means the Chinese government must reduce subsidies and overproduction in China. The Association of European Automobile Manufacturers in Brussels supported the punitive tariffs demanded by the EU. The association's director, Sigrid de Vries, said that a strong industrial strategy for electromobility in Europe, access to necessary raw materials, cheap energy, and a comprehensive charging network are more important than tariffs.

This issue will likely be discussed at the G7 summit in Italy. The EU is critical of the isolationist trade policy of the USA. American government punitive tariffs on Chinese cars have led to increased import pressure on the EU, as what China cannot export to the USA is now sent to Europe.

How US President Joe Biden will react to the fact that the American manufacturer Tesla will also be affected by EU measures is one of many open questions in this trade poker, writes DW.

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