Transport automobiles. - EU Introduces Penalties on Electric Cars from China, Risking a Dangerous Cycle of Retaliation
The Chinese government and the German automobile industry are echoing each other's sentiments over the EU's announced tariffs on Chinese electric cars. A spokesperson from the Beijing Foreign Ministry described the move as protectionist, detrimental to market economics, and in violation of trade rules. This sentiment had also been expressed by Mercedes CEO Ola Källenius. The Beijing government official continued, stating that it would negatively impact the EU's interests.
Similarly, BMW CEO Oliver Zipse opined, "The EU Commission is harming European companies and European interests." VW China board member Ralf Brandstätter dismissed the prospect of Chinese support for the local automotive industry. His remarks mirrored the stance taken by the Chinese government on the issue of subsidies.
The EU's position revolves around China's alleged unfair support of domestic automakers. The EU claims the right to impose tariffs on Chinese electric cars under international trade rules, ranging from 27% to 48%. According to the EU, these measures are aimed at safeguarding their domestic automotive industry from dumping imports.
Negotiations have been set until July 4, after which the tariffs can be temporarily raised, potentially leading to a final decision in the fall. The possibility of a compromise is increasingly uncertain as China has not shown much enthusiasm for reaching a deal. A Brussels-based diplomat expressed frustration over the Chinese government's lackadaisical approach.
Interestingly, representatives from the German automotive industry are themselves opposing the so-called "protection" the EU aims to provide. German car manufacturers are wary of potential retaliatory measures from the Chinese government that could seriously harm them. CEO of BMW, Oliver Zipse, voiced concerns about a possible "spiral of reciprocal trade restrictions," potentially impacting industries beyond automotive.
Reportedly, the Chinese government was considering imposing high tariffs on expensive cars from Europe. This would primarily affect Porsche and Mercedes, which do not or only partially manufacture their high-end cars in China, and face sales and price issues in the Chinese market.
German automakers are bound to the Chinese market, selling a third of their cars there in 2023. Their reliance on the world's largest automotive market leaves them at the mercy of Beijing's decisions. Despite the Berlin government's opposition, the Brussels vote is unlikely to be overturned, as even Germany's allies - Sweden, Hungary, Czech Republic, and Slovakia - are unlikely to change their stance.
Though the EU argues that these measures are necessary to prepare for the expected Chinese export wave, skeptics are skeptical. Chinese electric cars currently hold a minimal market share in Europe, with only 19% Europe-wide and 15% in Germany in 2023. Most of these cars are high-priced models, largely from Western manufacturers. So far, Chinese carmakers have not been as successful in exports as expected, reported the Chinese Automotive Industry Association CPCA.
The tariffs to be applied from July 4 vary depending on the manufacturer and their willingness to cooperate with the EU procedure. BYD, the Chinese market leader, has been given the most favorable rate of 17%. Geely Group must pay an additional 20% duty. Shanghai State-Owned Enterprise SAIC, which has had some success in European markets with its MG brand, faces an added 38.1% duty. SAIC has not been as cooperative as the government, being one of the least active participants in the EU procedure.
Currently, Tesla's tariffs stand at 21%, totaling 31%. As Tesla manufactures the Model 3 for Europe in its Shanghai facility, the EU has given the US manufacturer the opportunity to request an adjustment in its duties.
Western manufacturers, including Volvo, are impacted by the tariffs. Volvo, a Swedish carmaker, produces the EX30 SUV in China, which is highly popular in Europe. From next year, Volvo intends to produce the car in its Belgian plant in Ghent, a plan in place prior to the recent tariff discussions. However, there's no way to rush the move to European production at the moment. Volvo has been part of the Chinese automotive group Geely since 2010 and might be one reason why the Swedish government opposes the tariffs. As a result, Volvo's imports now fall under the 30% tariff rate that's applicable to Geely.
EU's Tariff Decision: Harsh or Justified?
The European Union has chosen quite a harsh approach with the introduced tariffs. The industry anticipated tempered tariffs approximate to 25-30 per cent. However, European officials claim that these tariffs are "fair." They make reference to import tariffs of significant marketplaces such as India, Brazil, and Turkey, also to the USA. US President Joe Biden had announced car tariffs of over 100 per cent on Chinese vehicles some weeks ago. Unlike Biden, the EU strictly adheres to WTO regulations, indicating EU representatives. Fear of retaliation was ruled out: "Such retaliation has not been factored into our research." According to the EU, any reprisals would be "totally unacceptable" from their point of view.
US tariffs also influence other goods from China. For some time now, there's a debate about how to tackle excessive Chinese imports. China has built-up an influential industry in numerous sectors with state bank-funded loans, leading to overcapacity. The domestic market is not thriving as rapidly as it did before the coronavirus pandemic and subsequently. The Chinese option is to export - if USA shuts the door, more to Europe. Many in Europe view this as a strategic assault on their domestic industry. Chinese leaders, on the other hand, maintain that their advanced industry is achieving export opportunities while following a similar pattern as Western companies that have operated in China for decades.
Amid the tariffs, there's a sense of optimism, despite the severe penalty, in European manufacturing and politics. The potential China-EU trade dispute could be less enraged than the Sino-US trade war. China may impose minimal countermeasures, mainly affecting luxuries from France and Italy, as disclosed by industry insiders in recent weeks. The retaliation would primarily impact countries advocating the tariffs. China has already shown its intent for negotiations, according to the EU Commission. Nonetheless, no signs from China suggest that the signals for de-escalation are evident.
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The EU's tariffs on Chinese electric cars have also affected luxury car brands from Europe, such as Mercedes-Benz and Porsche, which face higher prices and potential sales losses in the Chinese market. BMW, Volkswagen, and Volvo, among other German and Swedish automakers, are heavily reliant on the Chinese market, selling a significant portion of their cars there. Despite opposition from German and other European car manufacturers, the EU's tariffs on Chinese electric cars are being implemented, with varying duty rates depending on the manufacturer's cooperation with EU procedures. The Chinese government has responded by considering imposing high tariffs on expensive European cars, which could further escalate the trade dispute between the EU and China. The EU argues that its tariffs are necessary to protect its domestic automotive industry from unfair competition, while some argue that the tariffs are too harsh and could lead to harmful retaliatory measures from China.
