The European Union said on Wednesday it would impose tariffs of up to 38% on electric vehicles imported into the bloc from China, in a move that EU leaders said was an effort to protect domestic manufacturers from unfair competition.
The move comes a month after President Biden quadrupled U.S. tariffs on Chinese electric vehicles to 100%, opening a new front in escalating trade tensions with China amid growing concerns that an excess supply of Chinese green tech products is flooding global markets.
The European Union and U.S. actions reflect the challenges facing traditional automakers in Europe and the United States from upstart Chinese companies that are focused on electric vehicles and set up at much lower costs than their Western rivals.
But unlike their U.S. counterparts, many European automakers have deep ties to the Chinese market, and cars made in China will also be subject to the high tariffs. European automakers have criticized the EU’s move to raise tariffs from 10% for fear of retaliation from China, higher prices across the market, and a drop in demand for electric vehicles.
The tax increases announced Wednesday are provisional and on top of an existing 10 percent tariff, and will take effect on July 4. The increases on the three biggest Chinese manufacturers, including BYD, Geely and SAIC, range from 17.4 percent to 38.1 percent. The tariffs were calculated based on the level of cooperation with European authorities, who have been investigating the level of Chinese government support for these companies over the past few months.
Other automakers making electric cars in China, including European companies with factories or joint ventures there, will face tariffs of 21% or 38.1%, depending on their cooperation with the investigation, the EU said.
The European Union defended the measures, saying in a statement that an investigation launched on October 4 found that China’s electric vehicle supply chain “has significantly benefited from unfair Chinese subsidies, threatening to cause clear, foreseeable and imminent harm to EU industry through an influx of subsidized Chinese imports at artificially low prices.”
He Yadong, a spokesman for China’s Ministry of Commerce, said the tariffs lacked “effective legal basis” and were “weaponized over economic and trade issues.”
“This is not in line with what Chinese and European leaders agreed to on strengthening cooperation and will affect the atmosphere of bilateral economic and trade cooperation between China and Europe,” He said.
The European Commission, the European Union’s executive arm, has launched an investigation into whether the Chinese government was effectively subsidizing its own electric car production and exporting it to Europe at cheaper prices than European competitors.
The auto sector employs about 13 million people across the 27-nation European Union, which is the world’s second-largest market for electric vehicles after China. Imports of electric vehicles from China reached $11.5 billion last year, up from $1.6 billion in 2020.
About 37% of electric vehicles imported into Europe are made in China, including cars from Tesla, BMW and Renault-owned Dacia. Chinese brands account for 19% of Europe’s electric-vehicle market, a number that has been steadily growing, according to research by the Rhodium Group.
Senior European Union spokesmen said Europe was ready to negotiate with Chinese authorities to resolve the dispute and insisted the EU was not seeking to raise tariffs but was acting to protect its domestic industries.
Tesla, which makes the Model 3 and Model Y in Shanghai for the European market, has petitioned to have tariffs on its cars calculated separately, EU officials said. Other companies seeking separate review have been invited to submit petitions within nine months, but none had done so as of Wednesday’s publication.
European Commission President Ursula von der Leyen said last month that Europe was taking an “individualized approach” to calculating the amount of the increase in tariffs from the current 10 percent and that the increase would be “proportionate to the extent of the damage.” Tariffs for other exporters will be based on a weighted average of the tariffs imposed on the three companies under investigation.
China had warned before the announcement that it could retaliate by raising tariffs on gasoline-powered vehicles, agricultural products and aviation products imported from Europe. China already imposes a 15% tariff on all electric vehicles imported from Europe.
This includes cars made by BMW and Volkswagen, for example, both of which not only sell to China but also have large production facilities there.
German automakers worry the tariffs could raise prices in Europe and trigger retaliation from China, ultimately hurting both markets. German Chancellor Olaf Scholz criticized the higher tariffs last week during a tour of a factory in Russelsheim owned by Stellantis’ Opel.
“Isolation and illegal tariff barriers only end up making everything more expensive and everybody poorer,” Scholz said. “We will not close our markets to foreign companies because we don’t want that for our companies either.”
Economists have warned that raising tariffs to 20% could disrupt trade routes, with the Kiel Institute for the World Economy estimating that the higher tariffs could block $3.8 billion worth of electric cars from China from entering Europe.
But other experts say Europe would need to impose tariffs of at least 50% to be effective because Chinese manufacturers have a cost advantage over traditional European automakers in producing components such as electronic modules and battery cells.
The institute said even if European automakers were able to fill the gap, the decline in Chinese-made models would make electric cars more expensive overall, given rising labour and production costs.
“It’s by no means a given that European automakers will fill the gap,” said Julian Hintz, a trade researcher at the institute. Another threat to European automakers, he said, is the reality that Chinese manufacturers are already planning to expand production to Europe.
BYD, the Chinese auto giant, aims to become Europe’s top electric vehicle maker by 2030. Late last year, the company named Hungary as a planned location for its first assembly plant in the European Union. It said it was considering building a second factory elsewhere in Europe.
Another Chinese manufacturer, Chery Automobile, said last month it would open a factory near Barcelona as part of a joint venture with Spain’s EV Motors.
Other European countries are also eager to have Chinese automakers relocate to their countries, as they believe it will create jobs and strengthen domestic supply chains.
French President Emmanuel Macron has made a concerted effort to attract more battery production, including from Chinese companies, to the country’s northern region, where factory jobs are falling. French Finance Minister Bruno Le Maire went further, declaring that the Chinese auto industry is “very welcome in France.”
Many European automakers say strengthening their competitiveness is more important than tariffs, given the possibility of Chinese companies expanding into their neighbouring countries.
Volkswagen, which has several production and research facilities in China, said it was concerned that the tariffs would be harmful, especially at a time when demand for electric vehicles in Europe is falling.
“The EU’s import tariff hikes could trigger a dynamic of sanctions and countermeasures, leading to an escalation of the trade dispute,” the company said in a statement on Wednesday. “We believe the negative impacts of this decision will outweigh the positives.”
The tariffs are expected to take effect early next month. Affected companies and the Chinese government will then have a few days of grace, before the committee aims to put the final tariffs into effect by November, with a five-year term.
