Brussels is proceeding with tariffs on Chinese electric vehicles that are predicted to generate over €2 billion annually, ignoring German governmental advice that this could instigate a pricey trade conflict with Beijing. The European Commission is poised to notify automakers on Wednesday that it intends to tentatively enforce added charges of up to 25% on Chinese EVs imported from the next month, as reported by sources aware of the decision. The commission states that Chinese EV manufacturers gain an unfair advantage due to subsidies, thus undermining European competitors.
The tariffs, advocated by Spain and France, are expected to contribute billions of euros to the EU budget annually with growing sales of Chinese EVs in Europe. China, the EU’s biggest trading partner, sent €10 billion worth of electric cars to the EU in 2023, which boosted its market share to 8% last year, twice the previous share, as per Rhodium Group analysis.
Beijing is anticipated to retaliate as it endeavours to convince a majority of EU capitals to reject the new tariffs, adding to the existing 10% duties already charged by the bloc. Currently, a 15% tariff is imposed on European EVs by Beijing.
Germany, along with Sweden and Hungary, have expressed disapproval, fearing potential retaliation from China. There are claims that Brussels was pressured by Berlin and Ursula von der Leyen, gunning for her re-election as Commission president, to abandon the investigation into subsidies.
However, the lobbying attempts from German Chancellor Olaf Scholz’s have been unfruitful, with a source revealing that the Commission is expected to hike up their tariffs to around 35%. Includes are Chinese manufacturers like BYD and SAIC, along with companies namely Tesla with Chinese production plants.
The consequences of a 20% increase in tariffs on Chinese electric cars could result in a 25% drop in imports, according to the Kiel Institute. It’s estimated that the import of 500,000 units in 2023 will effectively decrease by approximately 125,000 vehicles worth nearly $4 billion (€3.7 billion).
Researchers have predicted that a potential production surge within the European Union (EU), coupled with a fall in EV exports, may precipitate a rise in prices for consumers. They predict that Chinese electric vehicles (EVs) will dominate 15 per cent of the EU market in the upcoming year, largely due to their generally lower prices.
EU Trade Commissioner Valdis Dombrovskis acknowledged the role of EVs in the transition to renewable energy when he announced an investigation last October. He stressed the need for a level playing field. The probe was borne out of evidence that Chinese car manufacturers and their suppliers had benefited from subsidised loans, tax advantages, and inexpensive land.
However, this plan has been criticised by European carmakers who worry that China could retaliate or ban them from the market. In 2022, European brands made up six per cent of EV sales in China. Despite a drop in car exports to China by Germany, companies like Mercedes and Volkswagen have continued to maintain factories there.
Geely, a Chinese company that is also being investigated, is the current owner of the Swedish Volvo. Prime Minister Ulf Kristersson, along with German Chancellor Olaf Scholz and Hungarian prime minister Viktor Orban, who has sought Chinese EV investment, have publicly voiced their disapproval of the EU tariffs.
To overturn the commission’s tariff decision, they would need the support of 11 other governments. Countries in central Europe such as the Czech Republic and Slovakia are expected to oppose the tariffs.
Meanwhile, Italy is worried about the backlash against its food and luxury products. France, though, seems determined to protect its industry and coerce China to invest in production, making it unlikely to cave in. Spain, another major automaker, is also believed to be supportive of the tariffs.
Before November 2nd, member states will be invited to cast their votes on the tariffs which are typically in place for five years.