The European Union announced on Wednesday that it will impose tariffs of up to 38 percent on electric vehicles imported from China into the bloc, in what EU leaders call an effort to protect the region’s manufacturers from unfair competition.
The move, which comes a month after President Biden quadrupled US tariffs on Chinese electric vehicles to 100 percent, opens another front in escalating trade tensions with China amid growing fears of a glut of Chinese green-tech products flooding the global markets.
The actions of the European Union and the United States also reflect challenges facing traditional carmakers in Europe and the United States from rising Chinese companies that have been established with a focus on electric vehicles and much lower cost bases than rivals in the West.
However, unlike US automakers, several of their European counterparts are deeply tied to the Chinese market, and their cars produced there will also be subject to higher tariffs. They have criticized the European Union’s move to raise tariffs from 10%, fearing retaliation from China, as well as rising prices across the market and falling demand for battery-powered cars.
The hikes announced on Wednesday, which are preliminary and will take effect on July 4, range from 17.4 percent to 38.1 percent for three of China’s leading manufacturers, including BYD, Geely and SAIC. The tariffs were calculated based on the level of cooperation with European officials, who have spent the past few months investigating the level of Chinese government support for these companies.
Other automakers that make electric vehicles in China, including European companies with factories or joint ventures there, face tariffs of 21 percent or 38.1 percent, the EU said. Those rates also depend on their cooperation with the investigation.
The European Union defended the move, saying in a statement that an investigation launched on October 4 found that China’s electric vehicle supply chain “benefits heavily from unfair subsidies in China and that the influx of subsidized Chinese imports at artificially low prices As therefore, it poses a threat of clearly foreseeable and imminent injury to EU industry.”
The European Commission, the EU’s executive branch, opened the investigation into whether the Chinese government effectively subsidized its production of electric cars and sent them to Europe at prices that were lower than European competitors.
The automotive sector provides nearly 13 million jobs across the 27-nation bloc, the world’s second-largest electric vehicle market after China. Electric car imports from China last year reached $11.5 billion, up from $1.6 billion in 2020.
About 37 percent of all electric vehicles imported into Europe come from China, including cars from Tesla, BMW and Renault-owned Dacia. Chinese brands account for 19% of the European market for EVs Their number is steadily increasing, according to a study by the Rhodium Group.
The EU left the door open to a possible deal, saying it had been in contact with Chinese authorities “to discuss these findings and explore possible ways to resolve the issues identified”.
Tesla, which makes its Model 3 and Model Y in Shanghai for the European market, has asked for the tariffs on its cars to be calculated individually, the EU said. Other companies asking for an individual review have nine months to submit their their application, he said.
Ursula von der Leyen, president of the European Commission, said last month that Europe was taking a “tailored approach” to calculating the increase in tariffs from the existing 10%, which would “correspond to the level of damage” caused. The duties for the other exporting companies will be based on the weighted average of the duty imposed on the three examined.
Before the announcement, China had warned it could retaliate by raising tariffs on gas-powered cars imported from Europe, agricultural and aviation goods. China already applies a 15% tariff on all electric vehicles imported from Europe.
These include cars made by BMW and Volkswagen, for example, which not only sell in China but also have large production facilities there.
German carmakers fear the tariffs will raise prices in Europe and trigger retaliation from the Chinese, ultimately hurting them in both markets. Chancellor Olaf Scholz of Germany criticized the increased tariffs last week during a visit to a plant in Rüsselsheim, which is owned by Stellantis’ Opel.
“Isolation and illegal customs barriers – which ultimately just makes everything more expensive and everyone poorer,” Mr Scholz said. “We don’t close our markets to foreign companies, because we don’t want that for our companies either.”
Economic experts had warned that a tariff hike of up to 20 percent could disrupt trade routes. The Kiel Institute for the World Economy estimated that such an increase would prevent $3.8 billion worth of electric vehicles from China from entering Europe.
But other experts point out that Chinese manufacturers’ cost advantage over Europe’s legacy carmakers in producing components such as electronic modules and battery cells means Europe would need to impose tariffs of at least 50 percent to be effective.
Even if European automakers were able to fill that gap, a drop in the number of Chinese models would raise the overall price of electric vehicles, given higher labor and production costs, the institute said.
“It is by no means a given that European carmakers will fill the gap,” said Julian Hinz, a trade researcher at the institute. Another threat to European producers, he said, is the reality that Chinese manufacturers already have plans to expand production in Europe.
BYD, the top Chinese carmaker, has set its sights on becoming a leading electric vehicle maker in Europe by 2030. Late last year, it named Hungary as the location where it plans to build its first assembly plant in the EU. The company said that he was considering setting up a second factory elsewhere in Europe.
Chery, another Chinese manufacturer, announced last month that it would open a factory near Barcelona as part of a joint venture with Spain’s EV Motors.
During a visit to Spain last week, China’s Commerce Minister Wang Wentao rejected Brussels’ accusations of unfair competition and urged the European Union to support cooperation and trade under World Trade Organization rules.
“We embrace healthy competition, but stand firmly against any malicious suppression efforts,” Mr. Wang said.
Other European countries are also keen for Chinese carmakers to relocate home, with the idea that they will create jobs and strengthen domestic supply chains.
French President Emmanuel Macron has made a concerted effort to attract more battery production, including from Chinese companies, to a northern region where factory jobs have declined. Bruno LeMaire, France’s finance minister, went even further, declaring that the Chinese car industry is “very welcome in France”.
Faced with the possibility of Chinese companies expanding in their backyard, many European carmakers point out that they are more concerned about increasing their competitiveness than tariffs.
“For me, tariffs are a short-term issue,” Arno Antlitz, Volkswagen’s chief executive, said in a social media post last month. “Chinese competitors are planning to produce their vehicles in Europe turning the competition locally and we need to prepare accordingly,” he said.
