Brussels is moving forward to further tighten the trade fence with China. The European Commission finalizes new tariffs on imports of Chinese electric vehicles, after a long investigation into state subsidies for cars imported from Beijing, cheaper than European ones and which would have been benefiting from competitive advantages due to this state doping . Taxes on these vehicles could thus increase from the current 10% to around 25%, according to community sources, but the figures are still being adjusted and countries like Germany are pushing to lower them. The Asian giant, meanwhile, is preparing to respond to the measure with tariffs on a variety of products that arrive from Europe, and that could affect everything from dairy products, large displacement vehicles or pork, to cognac. The European measure will not reach the level of that of the United States — which has quadrupled the percentage of its tariffs on Chinese electric vehicles, reaching 100%, and has embarked on a trade war with Beijing — but it will raise tension between the EU and China.
The issue is enormously sensitive. Not only because of the relationship with Beijing, which is the main supplier to Europe of minerals crucial for the green transition, but because there are member states, such as Germany, that do not want to touch anything related to China too much. Its car manufacturers, for example, depend on sales in the Asian giant and fear retaliation. Berlin has accepted that tariffs be raised, but is now trying by all means to keep them low, around 15%, in line with those imposed by China.
The increase in tariffs, which will be notified first to Beijing, would be temporary for the moment. The final figure is expected to be set in November and until then member states and Chinese manufacturers will negotiate. What is being debated, in reality, goes beyond import taxes: it is the model of commercial relationship between Brussels and Beijing, when the EU tries to promote measures to shield Chinese investors and warns of the Asian giant’s overproduction.
The European Commission opened an investigation into Chinese electric cars and the subsidies they receive in October 2023, when measures were announced to “remedy the effects of unfair commercial practices.” Since then, pressure to prepare the ground for new tariffs and warnings that the market cannot be controlled by China have not ceased. “Fair competition is good,” the head of the community Executive, Ursula Von der Leyen, launched in May. “What we don’t like is that China floods our market with massively subsidized electric cars. And we have to address this, we have to protect our industry,” she remarked after a meeting with Chinese President Xi Jinping.
The Commission believes, as it has pointed out in an implementing regulation, that there is sufficient evidence that imports of this type of vehicles receive aid of different types, either by “the direct transfer of funds”, by “the condonation or non-collection of public revenue”, or for “the public supply of goods or services for less than adequate remuneration”. And this would open the door to imposing a tax rate retroactively. Independently, the investment bank UBS assured in September last year that the Chinese competitive advantage is real. According to its calculations, the Asian manufacturer BYD has production costs that are 25% lower than its competitors.
“The European Union has an interest in being much more moderate in this escalation of tensions with China. That is why there is talk of a tariff increase of between 20% and 30%, very far from that imposed by the US Government,” explains Luis Pinheiro de Matos, specialist in international markets at CaixaBank Research. His estimate is similar to that made by Citi a few days ago, according to which the rate is most likely to increase to 25% or 30%. Even in a risk scenario, the company’s forecasts do not exceed 50%. However, it is assumed that the Asian giant will retaliate: experts anticipate countermeasures that involve a 25% tariff on internal combustion vehicles – which would mainly affect Germany – or other taxes on basic products.
Notable impact
While waiting for the conflict to escalate, the truth is that this EU move will have a notable impact on bilateral trade and European production. With a 20% tariff, the German Kiel institute estimates that the volume of electric cars imported from China would fall by 25%. That is, about 125,000 units would stop entering the European market, which would generate losses for Chinese brands of 4,000 million dollars (about 3,700 million euros). According to the report, the decline in imports would be largely offset by an increase in production within the European Union and a lower volume of exports of electric vehicles. The hardest blow would be suffered by final consumers, since it is very likely that final purchase prices will rise.
The Commission launched this investigation ex officio on its own initiative “after gathering sufficient evidence that the recent increase in low-priced and subsidized imports of electric vehicles from China into the EU represented an economic threat to the EU electric car industry.” “, as he said at the time. However, since the investigation was launched eight months ago, tensions have escalated between large economies to impose greater tariff barriers on China. The climax was reached in May with the US announcement that it would quadruple tariffs. The measure, according to analysts, put enormous pressure on the community bloc to follow its example because Chinese manufacturers, once isolated from the American market, would end up monopolizing the European market.
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