International commerce - The European Commission warns potential penalties on electronic cars imported from China.
The EU Commission is contemplating the application of substantial provisional levies on Chinese electric vehicles. The agency recently made this announcement, stating that the implementation of these tariffs (up to 38.1%) will depend on resolving the issue with China. They would then be enforced from July 4th if the EU deems it necessary for raising permanent tariffs.
Criticism has come from China and German car manufacturers. German Federal Economics Minister Robert Habeck (Greens) cautioned against a "tariff war."
The EU Commission has been examining since autumn whether Chinese electric vehicles benefit from distorting subsidies. According to the statement, Chinese electric cars are typically 20% cheaper than those manufactured in the EU. EU Commission President Ursula von der Leyen said during the announcement of the investigation, "The price of these cars is artificially depressed by massive state subsidies - this skews our market."
The Commission has now provisionally concluded that the value chain for battery-powered electric vehicles in China benefits from unfair subsidization. EU manufacturers might sustain damages as a result. Consequently, the Commission is now threatening tariffs ranging between 20% and just under 40%. Previously, only a 10% tariff was applied. Any additional tariffs would subsequently be applied, according to the announcement.
Specifically, a 17.4% tariff is planned for manufacturer BYD, 20% for Geely, while SAIC would be subject to a 38.1% tariff. Other manufacturers would face a 21% tariff, and for companies that didn't cooperate in the investigation, the figure is 38.1%.
The Chinese Foreign Ministry critically responded to the investigation, calling it protectionism. Spokesman Lin Jian in Beijing said, "The EU is seeking a pretext to impose tariffs on imported cars from China, which contravenes international trade rules. In the end, this will harm the interests of Europe." Yesterday, Lin had already announced that China would not remain idle and defend its interests.
The Association of the Automotive Industry (VDA) criticizes the EU Commission's threat to impose high tariffs on Chinese electric vehicles in the future. VDA President Hildegard Müller views the taxes as an impediment to global cooperation. Therefore, the risk of heightened trade conflicts is escalating, she emphasized. "The fact is also: Tariffs on imported electric cars from China are not helpful for reinforcing the competitive position of the European automotive industry," she stated on Wednesday. China must also approach Europe with constructive proposals, she said.
The German Industry and Trade Chamber (DIHK) cautioned against the possible development of stronger trade conflicts.
China is the world's largest automotive market and, as such, extremely important for German car manufacturers. Countermeasures would be taken by these companies. For instance, BMW exports the 4 Series and the 7 Series from the EU to China. The Munich-based company doesn't share any specifics about the volume. Porsche would also be affected if China takes countermeasures. China is a significant market for Porsche and receives all its vehicles from Europe. Audi expects to sell around 60,000 units in 2024.
In 2022, 30% of Mercedes' sales came from China. The Wolfsburg-based core brand VW sold nearly half of its cars there in 2023, but almost exclusively from local production. According to automotive consultancy firm JSC Automotive Consulting, which regularly analyzes registration figures in China, only 0.6% of VW's cars sold in China were import models. Audi came to 9% of this percentage, BMW to 13% of it, and the Mercedes-Benz Group to 20%. At Porsche, it was 100% due to the lack of local production.
A fierce price war is ongoing in China among electric car brands, with German contenders seeking to compete with rivals such as Tesla and Chinese firms like BYD or Nio. BMW, Mercedes, VW, and others could potentially be the first targets of possible Chinese countermeasures. The Chinese Chamber of Commerce in Brussels had cautioned about this possibility as early as May 22th. In a statement from the Chamber, it was mentioned that China is considering imposing tariffs of up to 25% on imported cars with large engines.
German firms could face greater consequences than only Chinese retaliation; they could also be affected by the EU measures themselves, as many of these companies produce in China for export. Mini, for example, creates the electric Cooper along with the Chinese auto manufacturer Great Wall in China. The VW Group's new Cupra Tavascan, slated for launch in the fall, is the first and only model built and exported from China to Europe.
BMW imports the iX3 from China into the EU, while Mercedes builds the Smart vehicles completely with its majority shareholder Geely in Xi'an, China, and exports them to Europe. The Commission revealed it hasn't explicitly explored which models from German manufacturers would be subject to which tariffs.
The European Union has taken similar steps to the United States when it comes to imposing tariffs on various Chinese products. The US had previously placed tariffs on electric cars, semiconductors, solar cells, cranes, and other products from China in mid-April due to allegations that Beijing distorts the market with significant state subsidies. These actions also claimed that Chinese products were deliberately directed towards the US and Europe. China refutes these claims, stating that the industries operate on innovation, and they're contributing to the fight against climate change.
2023 saw a massive increase of close to 78% in the export of Chinese cars, totaling 1.2 million, as per reports from state media. Germany, specifically, saw a 47.6% increase in newly registered vehicles of Chinese origin in 2023 compared to the previous year, according to data from the Federal Motor Transport Authority. Although impressive, these numbers pale in comparison to competitors from other countries. Chinese electric vehicle company, BYD, is currently expanding its transportation routes to Europe and setting up a factory in Hungary to serve as a gateway to the EU market, avoiding long sea transfers.
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The EU Commission is considering imposing provisional tariffs on Chinese electric vehicles due to suspected distorting subsidies, potentially ranging from 20% to 38.1%. Criticism of these measures has come from both China and German car manufacturers, including BMW, VW, and Audi, which export significant volumes to China. The Commission has provisionally concluded that Chinese electric vehicles benefit from unfair subsidies, leading to lower prices compared to European vehicles. Specific tariffs have been proposed for manufacturers such as BYD, Geely, and SAIC, while other companies could face tariffs of up to 20%. The Chinese Foreign Ministry has criticized the investigation as protectionism, and the VDA and DIHK have expressed concerns about the potential for escalating trade conflicts. German contenders in the Chinese market, including BMW, Mercedes, and VW, could be targeted by potential Chinese countermeasures. Furthermore, the EU has taken similar steps to the US in imposing tariffs on various Chinese products due to alleged market distortions. The Chinese electric vehicle company, BYD, is expanding its transportation routes to Europe and setting up a factory in Hungary to serve as a gateway to the EU market, avoiding high tariffs. The fear among economic stakeholders is that these mutual punitive tariffs could escalate into a wider trade war, affecting more than just the directly affected companies.
