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Both sides have important decisions to make after Brussels imposes provisional tariffs on Chinese electric cars. The tariffs must be approved (or not) by EU governments by the fall. China must decide whether and how to retaliate. These decisions are interdependent. Beijing will undoubtedly launch tailored threats targeting each country’s capital city (French Cognac has already been targeted) depending on the country’s stance.
But there’s a bigger question: What role should China play in Europe’s decarbonization plans? There’s an urgent need for Europe to clarify how to combine the twin goals of decarbonization (especially phasing out new fossil fuel vehicles within a decade) with promoting a domestic green tech industry.
Is the aim to make all 10 million or so cars bought by Europeans each year zero carbon? and Will all cars made in Europe be zero carbon, but with a significant proportion made in China, or will the priority be to ensure that the majority of electric cars bought in Europe are made in Europe, even if this means missing the target of all new cars being carbon free in the near future?
Confusion about where Europe wants to go also breeds confusion about the right means to get there. What is clear is that Europe, understandably, does not want China to completely corner the European EV market, as it has done with solar panels.
But if we take seriously the pledge to speed up vehicle electrification, it is unrealistic to expect the domestic industry to meet the target, given the slow progress so far: only about 15% of new cars bought in Europe are still pure electric, and of those, about a quarter are made in China.
The choice is really between the second and third options above: either using imports from China as part of the solution, or protecting domestic industry even at the cost of slowing or ceasing the decarbonization of transport.
Unfortunately, the latter path is what the US is heading down. The new 100% US tariffs effectively shut out Chinese-made EVs. The lack of access to cheaper EVs will undermine inflation-busting legislation that is convincing Americans of the carbon-neutral revolution, and threaten the uptake of EVs beyond those who want and can afford Tesla. Without a growing domestic market, production capacity will not grow sufficiently.
The EU avoided this trap: its tariffs are tailored to offset real subsidies, giving China justification for not retaliating, given that Chinese automakers can still sell in Europe at a profit in large quantities. But for that very reason, European politicians must decide what to think about a slight decline in imports but still a significant increase.
The key question is whether green industry and trade policies that balance domestic industry promotion with decarbonization goals work by making EVs more expensive for end consumers or by making them cheaper. The current trend is toward the former. But there are ways to achieve the latter.
Such an approach would explicitly tolerate large-scale imports from China, but combine this with more aggressive policies to ensure a reliable EV market for domestic manufacturers.
Tariffs should only be used to offset unequal production subsidies, and any carbon tariffs introduced should be extended quickly to cars (to eliminate the cost advantage of carbon-intensive energy), while taxes, subsidies and procurement policies should give European producers the confidence to sell the rapidly growing number of EVs domestically.
Shifting company car tax incentives from conventional to electric vehicles is essential. Germany can make a big difference by doing this without straining (or even saving) its budget. Subsidies should require a low carbon footprint, effectively ensuring access to European car manufacturers. The best solution would be EU-wide subsidies, or, failing that, EU measures requiring member states to provide them.
Instead, China should encourage more domestic EV adoption by offering stronger consumer incentives, and reducing some export pressures would make it politically easier for Europe to tolerate continued imports.
For this deal to happen, much less be realized, will require a much greater level of trust between Europe and China than exists today, given China’s track record of aggressively seeking to displace European industries and its support for Vladimir Putin’s illegal aggression and crimes in Ukraine. Restoring friendly relations with Europe rests in Beijing’s hands, but European leaders can do their part to convey how attractive it is.
Email: martin.sandbu@ft.com
