The European Union will impose higher tariffs on China’s electric vehicles, increasing trade tensions between the world’s top exporting powers. In some cases, fees can reach 45% of the car’s value.
The regulation introducing the fees will be published this Wednesday and is expected to come into force by the end of this week, after months of negotiations, threats of Chinese retaliation and appeals from the automotive sector to avoid escalation.
European tariffs on electric vehicles are a setback for Chinese producers, who are already effectively shut out of a huge potential market in the United States. This year, Americans quadrupled their tariffs to more than 100%, citing “ample” government subsidies and exports that increased 70% last year.
EU taxes vary by manufacturer and range from around 8% to just over 35%, on top of the existing 10% rate.
The latest wave of tariffs from the West comes amid fears that China is poised to dominate the global auto market at the expense of American and European rivals. Since introducing new battery technology in 2020, BYD — China’s leading electric vehicle brand — has gone from being one of many producers in a crowded domestic market to becoming one of the world’s top 10 automakers.
Even so, the main European automakers, Mercedes-Benz and BMW, made lobby against the tariffs, worried that the dispute could hurt their sales in China at a time when they are already facing difficulties. Earlier this week, Volkswagen’s top union leader said Europe’s biggest automaker plans to close at least three factories in Germany.
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The EU and its No. 2 goods trading partner will continue discussions with the aim of seeking alternative solutions even after the tariffs come into effect, but so far these talks have failed to produce a breakthrough. The impasse increases the risk of an escalation of confrontations in a commercial relationship valued at 739 billion euros (R$4.59 trillion) in bilateral merchandise trade in 2023.
Negotiators from Beijing and Brussels have been exploring the possibility of reaching an agreement on so-called price commitments, a complex mechanism to control prices and export volumes used to avoid tariffs that the EU has justified as measures designed to combat industrial subsidies. Chinese.
People familiar with the discussions said Beijing has yet to present proposals that meet the EU’s stringent demands, including aligning with World Trade Organization rules and equalizing the effect of tariffs. The 27-nation bloc also wants to ensure the EU can monitor compliance with the agreements.
Beijing appears to be primarily concerned with trying to secure a better deal for SAIC Motor, the state-owned manufacturer hit by the highest tax, according to the people, who spoke on condition of anonymity.
The EU is eyeing individual pricing agreements with some carmakers, including those that intend to move production of some models to Europe in the near future. With these agreements, tariffs would be suspended for models covered by the alternative agreements.
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Beijing has accused the EU of “divide and conquer” tactics and warned manufacturers not to seek such agreements as it wants everyone to be under a general agreement as part of negotiations being led by a Chinese trade body. The EU has stated that individual agreements are possible under WTO rules.
China also threatened to freeze investment in member states that supported the tariffs and retaliate with its own penalties on European products, including dairy products, pork and brandy, as well as cars with large engines. China launched an anti-dumping investigation into European pork in June, although it has not yet been concluded.
The EU has said it will defend its interests against any improper investigation and has already taken China to the WTO over its anti-subsidy investigation into the European dairy sector.
European officials said they expect China’s retaliation to materialize next month and that member states in turn will continue to pressure the EU to conclude a deal when that happens.
China cut tariff rates on vehicles with large engines to 15% in 2018 and is now warning it could increase them to as much as 25%.
To date, China’s response has been, for the most part, within the usual bounds of trade disputes. A greater concern would be if it went beyond this, for example by restricting exports of raw materials. In a territorial dispute with Japan more than a decade ago, China temporarily blocked exports of rare earths and more recently imposed export controls on several other essential minerals.
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Although Chinese officials have said little publicly about the progress of the negotiations, they have begun to implement retaliatory measures and, through representatives in the media and trade associations, have spoken out about the negotiations and suggested possible future measures if the EU imposes tariffs.
Chinese automakers have been pressured by Beijing to halt EU expansion plans because of the trade dispute, Bloomberg reported last week, citing people familiar with the matter. This threat was repeated in a recent article from a social media account linked to state media, which has been used as a conduit for messages about the dispute with the EU.
“When the European side implements discriminatory measures, Chinese companies will completely lose motivation to develop technical cooperation with European companies in China,” the article says.
‘Consequences’
To emphasize this message, the China Chamber of Commerce for the EU emailed a summary of the paper to journalists, calling it “of significant relevance to ongoing discussions on electric vehicles.”
The article also attacked the EU for trying to negotiate with carmakers individually as well as collectively. “If the European side insists on obstructing the negotiation process, it needs to recognize the consequences,” the article said.
Still, both Brussels and Beijing may soon need to shift some of their attention across the Atlantic. The US election next week could return Donald Trump to the White House, along with his promises to hit the EU and China with new tariffs.
It’s possible that Beijing officials will choose not to react immediately to the new EU tariffs while they await the results of the U.S. election, according to Henry Gao, a law professor at Singapore Management University who researches trade and Chinese policies.
“The only people more concerned about the U.S. election than Americans are the Chinese,” Gao said. “Everyone in Beijing is paying attention to the US elections now.”
