A decision by European Union member-states last Friday saw the affirmation of increased tariffs on electric vehicles manufactured in China, a move demonstrating a stringent trade negotiation method used by the commission against Beijing. The proposal was opposed by a mere five countries, including Germany and Hungary, too few to form a blocking minority under the qualified-majority voting system employed by the EU.
Of the ten nations who supported the increased tariffs were Ireland, France, and Italy, with a dozen more refraining from voting. This comes as Irish farmers express concern over an investigation by the Chinese ministry of commerce into EU subsidies within the dairy industry, a move instigated by Ireland’s support of the higher tariffs. While Beijing is contemplating further protective measures against EU exports, a larger scale trade warfare is not necessarily imminent and there are key reasons for both parties to avoid such a scenario.
The conclusion of China’s national day holiday last week was marked by an encouraging boost in the stock market, a response to a volley of stimulating measures aimed at reducing lending and bolstering the struggling housing market. In tandem with a host of other direct supports for the housing market, steps were taken by the central bank include reducing interest rates, lessening cash reserves necessary for banks, and injecting billions of yuan into the stock market.
Further action from the Communist Party’s politburo has been indicated, possible measures including financial support for families with multiple children and an aid package for the excess of 300 million rural workers within city environments. These extensive measures reflect Beijing’s commitment to spearheading economic growth.
However, sliding into a full-fledged trade war with the EU, its largest trade ally, is the least favourable outcome for the already flailing domestic demand within China’s economy. Conversely, European farmers and other exporters are ill-equipped for a downturn in their Chinese exports while existing conflicts in Ukraine and the Middle East cause trade disruptions.
Believed to take effect from early November, the imposed EU tariffs increase on Chinese electric vehicles is on the horizon. That said, the possibility of a negotiated settlement remains on the table. Readiness to ponder over other potential solutions has been expressed from both parties, and a meeting for technical discussions between Chinese and European officials is scheduled for today. The new tariffs are being introduced by the EU to thwart Chinese manufacturers from causing a price fall so intense that it could obliterate the European electric vehicle sector, similar to the demise of the solar panel industry. A proposed course of action includes setting both a floor price and a maximum limit for imported Chinese EVs, an approach that could complicate compliance with WTO regulations. Beijing and Brussels ought to strive to come to a mutually agreeable solution that not only shields the European industry but also averts plunging into a devastating trade conflict that would be detrimental for all parties involved.