EU Commission Plans Punitive Tariffs Against China’s Electric Cars

The EU Commission offers different tariffs to different carmakers: BYD will face an import duty of 17.4 percent, Geely (Volvo Cars; note) 20 percent and state-owned Chinese Volkswagen partner SAIC will be charged 38.1 percent. Other carmakers that have cooperated with the EU investigation are said to suffer a “weighted average tariff rate of 21 percent”. Electric cars from non-cooperating manufacturers will be taxed at 38.1 percent. Currently there is a flat rate of 10 percent for all electric cars.

“China will closely monitor the developments and will resolutely take all necessary measures to protect the legitimate rights of Chinese companies,” Reuters news agency quoted the Ministry of Commerce in Beijing as saying. China’s foreign ministry has previously criticized the investigation as “protectionism”. The European Union is looking for a pretext to impose tariffs on cars imported from China that violate international trade rules, spokesman Lin Jian said in Beijing on Tuesday.

If there is no deal with China by July 4, the customs authorities of the 27 EU countries will have to temporarily demand import duties in the form of guarantees. Punitive charges will only be imposed once the measure has been officially confirmed by EU member states. A special rule applies here, the Commission writes in its publication: if a qualified majority (at least 55 percent of countries representing at least 65 percent of the EU population) votes for tariffs, they will definitely be introduced. If a qualified majority votes against it, the charges are dropped again. If there is no clear majority in favor of a direction, the Commission shall decide on it.

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The industry association (IV) has reacted with concern to today’s announcement. It said in a press release that EU safeguard instruments “make sense in some areas”. “However, European reactions must not lead to a protectionist spiral, which ultimately disadvantages European manufacturers and only the losers know. China is an important sales market and production location for Austrian companies, and it must be protected.”

KTM owner Stefan Pierre recently spoke from the industry in Austria and spoke clearly against punitive tariffs. “Punitive tariffs would be the stupidest thing the EU could do,” he told “Salzburger Nachrichten” at the end of May.

In September 2023, EU Commission President Ursula von der Leyen announced an investigation into Chinese state aid to car manufacturers, justifying this with the risk of China flooding Europe with cheap electric vehicles at the expense of European manufacturers. France’s automobile sector in particular is likely to welcome today’s move. Germany, whose China is an important sales market for its automobile manufacturers, fears retaliation from Beijing. In addition, many German car manufacturers have outsourced the production of their electric cars to China and will therefore be affected by the import tariffs themselves.

If you shift your focus from the auto industry to the industry as a whole, the picture becomes very different: According to a recently published survey by the Institute for Employers (IW) in Cologne, the majority of German industrial companies support punitive tariffs on electric cars from China. This may also have to do with past experiences. In announcing the anti-pile investigation, van der Leyen referred to the fate of the European solar industry, which has suffered heavily in the past from Chinese competition.

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But France, one of the tariff’s supporters, is likely to suffer from possible countermeasures by the People’s Republic. After the EU announced it was launching an investigation, Beijing responded with its own investigation into European alcohol imports, effectively targeting French cognac producers.

Economists interviewed by Reuters reacted differently to the EU plans. Ifo president Clemens Fuest doesn’t think the move is a good idea and suggests leaving the EU. Feust argues with China’s possible countermeasures. It could also delay the electrification of European car transport.

“China subsidizes its own industry heavily and thereby distorts competition because this decision is ultimately binding,” said Jens Suetecum, competition economist at Heinrich Heine University Düsseldorf.

China is currently suffering from weak domestic demand, which is forcing even its own companies to rely on exports. In response, the U.S. recently quadrupled its tariffs on Chinese electric vehicles from 25 to 100 percent — likely to further pressure the European market.

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