The European Union is set to implement tariffs ranging from 17.4% to 37.6% on imports of electric vehicles (EVs) from China starting Friday, marking the largest trade case ever undertaken by Brussels. This move, however, is provisional for a four-month period during which intensive negotiations are expected between the EU and Beijing, as China threatens to retaliate broadly.
Addressing Market Distortion
The European Commission’s decision aims to counter what its president, Ursula von der Leyen, describes as a flood of inexpensive, state-subsidized Chinese EVs. A 208-page document released on Thursday outlines the provisional duties, which closely mirror those announced on June 12, with minor adjustments following feedback from companies.
Retaliation Concerns
China has indicated it will take “all necessary measures” to protect its interests, potentially imposing retaliatory tariffs on EU exports such as cognac and pork. EU trade chief Valdis Dombrovskis argues there is no basis for such retaliation, emphasizing the need for fair competition and a level playing field.
Industry Impact
The tariffs will affect major Chinese EV manufacturers like BYD, Geely, and SAIC, as well as western carmakers Tesla and BMW, who cooperated with the EU’s anti-subsidy investigation. Non-cooperating companies face the highest tariff rate of 37.6%.
Chinese automakers, already struggling with a domestic price war, must decide whether to absorb these new costs or increase prices, potentially undermining the EU’s carbon-neutral goals for 2050. Some brands, including MG and Nio, have hinted at possible price hikes in Europe, while Tesla has already announced plans to raise prices for its Model 3.
Potential for European Investment
The prospect of high tariffs may drive Chinese automakers to invest in European manufacturing to bypass these costs, despite higher labor and production expenses. Xpeng is the latest EV maker considering this move.
European Reaction
The announcement has drawn criticism from European car manufacturers, with Volkswagen highlighting the negative impact on the industry. Auto executives warn that the tariffs could prompt counter-measures from China, affecting their competitiveness in a key market where they already face stiff competition from domestic brands.
Market Share and Historical Context
Chinese EV brands have rapidly increased their share of the EU market from less than 1% in 2019 to 8%, with projections to reach 15% by 2025. The Commission notes that Chinese EVs are typically priced 20% lower than EU-made models. European policymakers are wary of repeating past mistakes, such as the insufficient action taken against Chinese solar panel imports a decade ago, which led to the collapse of many European manufacturers.
Moving Forward
The EU’s anti-subsidy investigation, initiated last October, will continue for nearly four more months. At its conclusion, the Commission may propose definitive duties for up to five years, subject to approval by EU members. While the Commission did not act on an industry complaint, member states remain divided on supporting the tariffs, reflecting the complexity of gaining consensus on this issue.
Conclusion
As both sides continue technical talks, the hope is for a mutually beneficial solution that addresses market distortions while maintaining fair competition. The upcoming advisory vote by EU members will be the first official test of support for the Commission’s case, a critical juncture in this significant trade dispute.