EU imposes tariffs on electric vehicles from China

It has been clear since Friday that the EU and China are on the verge of a trade conflict. In the summer, the Commission proposed imposing tariffs on Chinese electric cars. That is the right of the Commission; it is responsible for the trade policy of the confederation of states.

The member states could have averted the measure if 15 of them, representing 65 percent of the population, had spoken out against it. That was not the case on Friday, meaning the tariffs could finally be introduced. They will be between 7.8 percent (Tesla) and 35.3 percent (SAIC) and depend, among other things, on how much the manufacturers have cooperated with the EU. The rates are in addition to the existing 10 percent.

However, the tariffs are not yet in force; they will be at the end of October. In the meantime, the EU Commission wants to continue negotiating with China to find an alternative solution to the conflict. Discussions about this have taken place repeatedly in Brussels in recent months. But obviously there was no result. If there is no result in the next two to three weeks, the tariffs will apply for five years.

Subsidies across the entire production chain

The customs discussion was initiated by the EU Commission. According to her, Chinese electric car producers such as BYD, Geely and SAIC, but also a foreign manufacturer such as Tesla, receive a variety of subsidies across the entire production chain from the lithium mine to the export port.

According to the Commission, this gives manufacturers an advantage over their European competitors, and the tariffs are intended to compensate for this. The EU Commission considers the production of electric vehicles to be a strategic sector. However, in view of the Chinese export offensive, she fears that it will suffer the same fate as the solar module industry. Mass production of these no longer takes place in Europe; Chinese competition has put an end to it.

However, no one seems to know what a solution to the trade dispute could look like that would allow both sides to save face. The EU Commission did not announce what it expects from China’s government. It is possible for the country to impose self-restrictions on the export of electric vehicles or a minimum price for cars that are exported.

Chinese manufacturers produce many more electric vehicles than the domestic market absorbs. The e-car sector is strategically important for the government – so it sees it in a similar way to the EU.

There are dozens of producers in China, and consolidation seems inevitable. If exports of electric cars decline, the shakeout will be even more severe, and that is exactly what the Chinese leadership seems to fear. China is already struggling with the collapse of real estate prices, but the export sector is a pillar of the economy. If he also gets into a crisis, it would be a further burden for the country.

Germany is against tariffs, France is for it

The conflict over car tariffs has once again divided the EU countries, but there are also very different views within the states. The German government spoke out against the tariffs on Friday. However, the coalition of SPD, Greens and FDP was divided.

Like the German auto industry, Chancellor Olaf Scholz is against tariffs. Oliver Zipse, the boss of BMW, says the EU countries’ decision is a bad sign for the continent’s auto industry. Economics Minister Robert Habeck, however, wanted Germany to abstain from the vote and continue negotiations with the Chinese.

Hungary’s Prime Minister Viktor Orban warned on Friday that the EU would start an economic cold war with China if it imposed tariffs on electric vehicles. His country maintains close political relations with China, and companies from there are currently investing large amounts in Hungary. CATL is building a battery factory in Debrecen, which will also supply a BMW factory that is also under construction there.

France, on the other hand, is considered a supporter of the tariffs. This means that France and Germany once again have different ideas about how the EU should position itself in global trade. This conflict is fueling animosity in the EU. Representatives of the German auto industry are of the opinion that the EU Commission is letting France dictate its strategy.

French producers do not sell nearly as many electric cars in China as German manufacturers, and they do not operate large factories there either – unlike their German competitors. These would be comparatively badly affected by countermeasures from China.

The EU is harming consumers

The big question will be how the country will react to the decision. The government fired warning shots at the EU months ago. It is investigating whether European brandy and pork producers operate with dumping prices. China also initiated an anti-dumping investigation at the World Trade Organization (WTO). The question is whether the EU’s financial aid to dairy farmers and cheese producers violates international trade rules.

China has chosen these targets cleverly. First, countervailing duties on these products would affect France more than other countries. Secondly, the measures are aimed at agriculture: a well-connected industry that knows how to make its voice heard.

On Friday, China’s Ministry of Commerce described the EU member states’ decision as unfair and unreasonable. He violates the rules of the WTO. However, there was no mention of further countermeasures. The auto sector had already spoken out before the government. A representative of the manufacturer Geely said the EU was harming European consumers.

The Swiss do not pay any tariffs

The company was alluding to the fact that electric cars in the EU could become more expensive as a result of tariffs. From the buyer’s perspective, this is a contradiction to the EU’s environmental policy intentions: after all, their goal is to reduce greenhouse gas emissions. Electric cars play a key role in this plan.

However, the Commission tried to dispel such concerns by pointing out that importers would probably cover part of the tariffs.

By the way, the customs duties do not apply to car buyers in Switzerland, even though the vehicles are imported via EU territory. In any case, Switzerland, unlike the EU, has concluded a free trade agreement with China.