Is this the end of cheap electric cars?

It had been announced for a long time, now it is certain: Only a month after the US government Not May Import duties on Chinese electric cars The EU wants to follow suit. In concrete terms, this means that electric cars from Chinese brands will be significantly more expensive from July 4th.

If no compromise is reached with Beijing by today, Thursday, the EU Commission will increase tariffs, some of them drastically, in order to protect its own car industry from competition from the Far East. German car manufacturers fear consequences for their business model and are still hoping for a negotiated solution.

The EU Commission is expected to publish the necessary details for the entry into force on Thursday. These would then be collected as a security deposit from midnight on July 5.

By November at the latest, the EU states must decide whether to introduce tariffs in the long term. In this case, the provisional tariffs would then be imposed retroactively in certain cases.

Here are the most important questions and answers:

Why are there now tariffs on electric cars from China?

Because the Chinese state has been subsidizing domestic electric car manufacturers with billions for years, which means they can offer their cars in Europe at a much lower price than their European competitors.

After months of investigation, the EU Commission has now concluded that these subsidies distort the market and pose a “clearly foreseeable and imminent threat to EU industry”. This justifies import duties to offset the price difference and ensure fair competition.

What do German car manufacturers say about this?

Germany is hoping for a compromise. The German Association of the Automotive Industry (VDA) is vehemently warning of the consequences for the domestic economy. The punitive tariffs are not effective for either the EU or Germany, it says in a key points paper. The association is warning of the “enormous” damage that could be caused by potential countermeasures from Beijing.

China is the largest car market in the world and, according to the VDA, was the third largest export market for cars from Germany in 2023 – after the USA and the United Kingdom. If import duties were to be introduced from Beijing on vehicles with an engine of more than 2.5 liters, this would hit the industry hard, according to the lobby association. In 2023, around a third of the vehicles exported from Germany to China fell into this size range.

In addition, high taxes cannot achieve the stated goal of ensuring fair competition and protecting domestic industry from unfair practices. The EU Commission, on the other hand, does not believe that there will be major price increases for EU cars. The manufacturers would swallow the tariffs.

How high will the punitive tariffs be?

The Commission makes this dependent on the extent to which the respective companies have cooperated with the EU authorities during the investigation:

Electric cars from the world market leader BYD are subject to tariffs of 17.4 percent of the sales price, while Volvo and Polestar parent company Geely is subject to 20 percent, and VW’s Chinese partner company SAIC is subject to 38.1 percent. Other brands that cooperated in the investigation are subject to tariffs of 21 percent; those that did not cooperate are also subject to 38.1 percent. These new tariffs are added to those already in force (10 percent).

So are only Chinese brands affected?

No. Because any Western company is only allowed to set up in China if it establishes a joint subsidiary with a Chinese company (joint venture), international brands that have outsourced their electric car production to China are also affected.

Tariffs of 21 percent are therefore likely to be due on some BMW and Tesla models.

Can the EU Commission simply decide on import tariffs on its own?

Yes and no. All of these import duties are so-called provisional duties that only apply until November – because only these can be imposed by the Commission. In the autumn, a summit meeting of the 27 EU heads of government will decide whether the measure will remain in place.

This requires a qualified majority, i.e. the votes of 55 percent of the member states – or at least a group of member states that together represent more than 65 percent of the EU population.

There will probably still be heated debates until then. France and Spain are the biggest supporters of the tariffs, and Germany in particular is criticizing them fiercely because the German car industry fears countermeasures from China. For brands such as VW, BMW and Mercedes-Benz, China is by far the largest market in the world.

How does China react?

The Chinese Chamber of Commerce in Brussels warned that China would be “forced to take a series of retaliatory measures.” Beijing, for its part, accuses the EU of violating WTO rules. “It is clear to everyone who is exacerbating trade conflicts and instigating a ‘trade war,'” said a spokesman for the Chinese Ministry of Commerce.

A few days after the announcement from Brussels, Beijing had already threatened the EU with measures to restrict pork imports. The Ministry of Commerce in Beijing announced an anti-dumping investigation, as a result of which China could also impose punitive tariffs. Dairy products from the EU are another possible target for Chinese tariff increases.

So is a trade war with China looming?

The backlash from Beijing is likely to be severe and damage European car companies. Concrete measures have not yet been announced, but they could go as far as a blockade for German cars. Their company bosses are warning of a spiral of escalation.

Are further punitive tariffs on Chinese imports threatened?

The EU Commission is also investigating whether solar cells from China, which dominate the EU market, are receiving excessive subsidies. If so, punitive tariffs are threatened – and very soon.