EU ignites first escalation stage for e-cars "made in China"
The EU Commission will impose fines on Chinese automakers starting from this Friday to protect domestic competitors. Manufacturers from China may have to pay up to 37.6% additional tariffs. Here are the key questions and answers in a nutshell.
Chinese automakers must prepare for new tariffs on exports of "Made in China" electric vehicles before the EU deadline expires. It is expected that the European Union (EU) will confirm its decision from June: Manufacturers in China will temporarily have to pay up to 37.6% additional tariffs if no negotiation solution is reached by that day. The EU Commission and China have recently been in talks about the tariffs, with Brussels aiming to protect domestic competitors from a flood of subsidized vehicles.
China denies the allegations of subsidies and threatens retaliatory measures. According to government sources, Germany is against the EU plans. German automakers made a third of their sales in China last year. France, Italy, and Spain, on the other hand, are among the supporters.
Why are the tariffs temporary?
The EU Commission must publish the necessary details by today, Thursday, for the provisional tariffs to take effect. In this case, they will be imposed starting from Friday midnight through a security deposit - similar to a bond.
Whether the EU will actually implement this remains to be seen, depending on whether a solution can be found in negotiations with the Chinese government within the next few months. This second deadline expires in November. The EU member states must then decide whether to permanently introduce tariffs - with potentially retroactive application of the provisional charges.
What exactly did Brussels decide in June?
Brussels has the right to increase EU import tariffs on Chinese electric vehicles according to international trade rules, as China's government unfairly supports domestic auto manufacturers. Tariffs then rise - depending on the manufacturer - from 10% to values between 27% and 48.1%. The EU aims to protect its auto industry from artificially cheap imports while remaining within the regulations of the World Trade Organization (WTO). Possible retaliatory measures are considered unacceptable by the EU.
Have China and the EU seriously negotiated?
The EU Commission and Chinese negotiators have reportedly held talks since last week. Brussels has made it clear that it expects a contribution from Beijing by July 4th for technical negotiations aimed at dismantling the criticized harmful subsidy practice for building electric vehicles.
Reuters reported on a confidential meeting between the Chinese state-owned SAIC conglomerate and market leaders BYD, BMW, and Volkswagen. A mutually acceptable solution seems out of sight.
For different manufacturers and levels of cooperation in the formal EU procedure, additional tariffs, in addition to the previously applicable ten percent, may apply: For the BYD corporation, due to good cooperation and lower subsidies, the most favorable rate is 17 percent, according to EU investigation. The Geely Group must pay an additional 20 percent tariff. SAIC from Shanghai, known in Europe with the brand MG, is subject to 38.1 percent additional tariffs due to lack of cooperation.
Tesla, whose Model 3 for Europe is produced in Shanghai, is likely to pay 21 percent additional tariffs. Western manufacturers producing in China are affected as well, including Volvo with the compact SUV EX30. The Swedish carmaker Volvo has been part of the Chinese automotive conglomerate Geely since 2010. From next year, Volvo plans to build the car in its Belgian plant in Gent. For Volvo's imports into the EU, the Geely tariff applies now.
Why is there a second deadline until November?
Due to the sensitive issue of the tariff confrontation with China among governments and carmakers, EU members are expected to issue a first recommendation in the coming weeks and indicate a trend to the EU Commission. According to Reuters' report from a survey on Wednesday, many EU countries are still undecided on whether they will support tariffs on Chinese electric cars.
The majority are weighing the pros and cons of an escalating trade conflict with the second-largest economy in the world, it is stated. This group includes Greece, Czechia, Ireland, Poland, Belgium's caretaker government, and the Netherlands. France and Spain have declared themselves in favor of tariffs. According to the EU schedule, a final decision on the new import restrictions should be made in the autumn. They could be blocked if a "qualified majority" of at least 15 member states and 65 percent of the EU population are against it. The automobile industry employs approximately 15 million people in Europe.
What position does the German automotive industry take?
The domestic automotive industry rejects the tariffs as harmful protectionism that is neither beneficial for the EU nor for Germany. China is the largest automotive market in the world and was, according to the VDA, the third-largest export market for German cars in 2023, after the USA and Great Britain. One-third of the exported vehicles therefore fall into the category of more than 2.5 liters of cubic capacity, which could be subject to possible Chinese import tariffs.
The Chairman of the Board of Management of BMW Group, Oliver Zipse, stated regarding the antisubsidy investigation: "The introduction of additional import tariffs leads into a dead end." Instead of strengthening the competitiveness of European manufacturers, it harms the business models of global operating companies, reduces the offer of electric cars for European customers, and could even slow down the decarbonization in the transportation sector. "Such measures are a heavy intervention in the also EU-promoted principle of free trade." Volkswagen and Mercedes took similar positions in recent weeks.
Why are BMW, Mercedes, and others being so quiet?
Countermeasures from Beijing would cause more harm to the German automobile industry than the tariffs would help. It is feared that with tariffs, a mutually escalating trade war with mutual trade restrictions could begin. This could then set off a spiral and ultimately affect other industries as well. According to the VDA, 2023 cars worth 15.1 billion Euro were exported from Germany to China, while imports were worth 4 billion Euro.
Auto suppliers exported components worth 11.2 billion Euro to China, four times more than was imported. The threatened increase in import tariffs on German luxury cars with more than 2.5 liters of displacement would significantly affect German car manufacturers. Around 120,000 of the cars exported from Europe to China belonged to this segment.
How does the German government react?
The German government is skeptical about tariffs on electric cars from China. It may have few options to change the Brussels vote. According to reports, Federal Chancellor Olaf Scholz proposed a deal between China and the EU, according to which a uniform tariff of 15% would apply to Chinese and European car exports. The EU Commission rejected this: "no option".
Will China respond with counter-tariffs?
Some hopes are pinned on the fact that Beijing could react with limited countermeasures, primarily targeting luxury goods from France and Italy. Then, the counter-attack would mainly affect the countries that had most strongly advocated for the tariffs. Beijing questions the results of the subsidy investigation fundamentally and describes the offensive for electric car exports from China as part of a mature industry that is now using its export opportunities, as the Western industry has been doing in China for decades.
So far, there has only been saber-rattling regarding Chinese electric cars flooding Europe. According to the Chinese Ministry of Commerce, a review by Beijing, which could lead to further countermeasures, is already in full swing. Details would follow at a later date, it was reported this week.
Is there really a flood of Chinese electric cars in Europe?
Commission President Ursula von der Leyen spoke of China "flooding Europe with cheap electric cars". The market share of "Made in China" cars in the European electric car market in 2023 was 19%, in Germany 15%. More than half came from Western manufacturers such as Tesla, BMW or the Renault subsidiary Dacia, which all produce cars for Europe in China.
Current export expectations of Chinese manufacturers are not being met. The large export wave, experts believe, will not start before 2026. The German automobile industry estimates that the market share of Chinese electric cars on the European passenger car market will be around 5-10% by 2030.
This article first appeared on Capital.de
- The EU Commission has decided to impose temporary punitive tariffs on Chinese electric vehicles to protect its domestic automakers from subsidized imports.
- Tesla Motors may have to pay an additional 21% tariff on its electric cars exported from its Shanghai plant due to these measures.
- The EU aims to implement these tariffs starting from Friday midnight using a security deposit, as per international trade rules.
- BYD, a Chinese electric vehicle manufacturer, will pay the most favorable rate of 17% additional tariff due to good cooperation and lower subsidies.
