The European Union said on Wednesday it would impose additional tariffs of up to 38 percent on electric vehicles made in China, saying the measures would help level the playing field for European automakers.
The tariffs, which have been expected for months, are on top of an existing 10% tariff, but there is ongoing debate about how big an impact they will have. Some European automakers say the tariffs will spark a trade war, while other experts say they won’t stop China’s dominance in the auto industry.
Rather, they argue that if the European Union wants to meet its goal of banning new sales of internal combustion engine vehicles by 2035, it needs incentives to make low-emission vehicles more attractive to drivers.
What does this mean for consumers?
Industry experts predict that higher tariffs on Chinese-made electric vehicles will hurt consumers more than Chinese automakers, as they will increase the prices of the most affordable electric vehicles on the market.
But China’s entire electric vehicle supply chain is subsidized by governments, allowing Chinese automakers to slash production costs, giving them an unfair competitive advantage over European rivals, a European Union investigation has found.
For example, BYD’s Dolphin model sells for around 32,400 euros ($34,900) in Europe, compared with around 40,000 euros for the Tesla Model Y and 37,000 euros for the Volkswagen ID.4.
Restricting EV exports to EU countries would increase the likelihood that Chinese automakers would move production to European countries with higher labor and parts costs, such as Hungary and Spain, raising costs for consumers.
How will this affect European car manufacturers?
Many European automakers are heavily reliant on China, the world’s largest auto market, for both exports and production for their domestic market.
“These import tariff decisions are the wrong direction,” BMW CEO Oliver Zipse said on Wednesday. “The EU Commission is damaging European companies and European interests.”
German automakers BMW, Mercedes-Benz and Volkswagen not only sell to China but also have large manufacturing and research and development facilities there, and they fear that retaliation from the Chinese government could hurt their business.
Other manufacturers are also looking to partner with China. Stellantis said last month it would sell two models in Europe through a joint venture with Chinese automaker Leap Motor Co. as part of a bid to avoid tariffs.
Was the EU simply following the US lead?
The Biden administration announced last month that it would impose new 100% tariffs on Chinese-made electric vehicles, four times the tariffs the U.S. has previously imposed on foreign cars, in a move to protect the U.S. auto industry from Chinese competition.
Some analysts have worried that low tariffs may not be enough to stop Chinese electric vehicles from coming to the United States, given the large price difference between Chinese and American-made cars.
But Wendy Cutler, vice president of the Asia Society Policy Institute and a former U.S. trade official, said a 100 percent level would be enough to block trade. “This is what we call a prohibitive tariff. It completely blocks trade,” she added.
The European Union launched an investigation into Chinese EV subsidies in October, with EU leaders saying subsidies provided by China’s three biggest electric vehicle makers — BYD, Geely Automobile and SAIC — create unfair competition.
Is this a setback for climate policy?
Such tariffs have sparked debate among some economists and environmentalists about whether they would impede efforts to combat global warming, which is caused by gasoline-powered vehicles that emit large amounts of greenhouse gases.
The argument against the tariffs is that they will make electric cars more expensive and slow the transition away from fossil fuels — arguments made by the Chinese government and several German automakers, as well as experts who say Western countries should be interested in cheaper electric cars if they want to meet their climate change goals.
“Protectionist measures will only lead to higher car prices for consumers and, in this case, further delay the achievement of announced emissions targets,” said Manmohan Sodhi, professor of supply chain management at Bayes Business School in London.
How did the EU get to this point?
The European Union is eager to avoid a repeat of the situation in the late 2000s, when the Chinese government poured huge amounts of money into solar energy technology, encouraging domestic manufacturers to invest billions of dollars in new factories and gain market share globally.
The Chinese production boom caused panel prices to plummet, forcing dozens of companies in Europe and the United States out of business, prompting the European Commission to launch an anti-dumping investigation and impose punitive tariffs on Chinese-made panels.
But China retaliated, announcing its own investigations into European exports of wine and solar panel parts, a move that divided EU member states, pitting them against each other and ultimately leading to European countries backing out.
More than a decade later, Germany’s solar industry is still struggling, with cheap Chinese-made solar panels dominating the market.
What happens next?
Even before the tariffs were announced by Brussels, demand for Chinese-made EVs in Europe had begun to slow after Germany and France cut subsidies for electric vehicles.
Last month, Great Wall Motors said it would close its Munich headquarters, citing an “increasingly tough European electric vehicle market and many uncertainties for the future.”
But BYD, China’s leading electric-car maker and a sponsor of the 2024 European Football Championship, which begins in Germany on Friday, remains focused on Europe. It is already building a factory in Hungary and is considering a second one.
Anna Swanson He contributed reporting from Washington.
