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Date: 08/10/2024
Who’s involved:
European Commission, European Member States, China, automotive industry.
What happened?
On 04/10/2024, EU member states voted to implement tariffs up to 50% on imports of electrical vehicles made in China. After a year of the opening of the EU’s Commission investigations into China’s automotive industries after the surge in low prices in the electric vehicle market, EU member states voted to raise import tariffs by up to 54% on China’s imported electric vehicles. The vote divided EU member states; France, Poland and Italy voted for the raise in import tariffs to protect domestic industries, while Germany and Hungary voted against. China’s Commerce Ministry said it opposed the planned tariffs and called them ‘unfair, non-compliant and unreasonable’. In a retaliatory measure to import tariffs, China on the same day launched investigations into the import of European pork and dairy, which are aimed at EU member states who support battery electric vehicles (BEV) tariffs against China.
On 26/08/2024, Canada followed the lead of the United States and the European Union said that it would impose 100% tariff on imports of Chinese electric vehicles and 25% tariff on imported steel and aluminum from China.
On 04/10/2023, the European Commission launched an anti-subsidy investigation into the imports of BEV from China. Ursula Von Der Leyen said that the electric vehicle holds potential for the future of Europe’s competitiveness. Evidence of market distortions and unfair competition in China’s BEV sector will be investigated. The EU Commission investigated whether China’s benefits from ‘illegal’ subsidization and whether this threatens or harms EU BEV producers.
Analysis:
The EU member states' split vote on BEV tariffs comes as China churns out steel, cars and solar panels more than its economy can consume domestically, forcing cheaper exports to the rest of the world. This is a part of Xi Jinping’s economic strategy to focus on “high quality productive forces” and to make China a world leader in high-tech industries by plowing billions into strategically important sectors.
The EU’s investigation into China’s electric car subsidies is due to accusations of “unfair trade practices”. The EU is concerned that the far cheaper prices offered by Chinese companies such as BYD and SAIC will be unable to compete with its own profoundly China-dependent automotive industry. The move intends to protect the European car industry from being undermined by what EU politicians say are unfair Chinese-state subsidies. Despite the political pressure to act, the European car industry has strongly objected to imposing tariffs for fear of China’s retaliation. China is the world’s largest market for Europe’s car manufacturers and many have built supply chain relationships over years.
The surge in China's electric vehicle exports is not restricted to Europe. China’s electric cars are cheap and are common throughout the world. Subsidies have played a role in the development of new Chinese car brands such as BYD and SAIC. Yet the combination of China’s slowing demand for more expensive cars and an aggressive price war between 40 companies throughout 2024 in China’s domestic market has led Chinese electric car brands to aggressively expand abroad. China’s transition from an exporter of low-value exports to higher-value exports, like industries important for the green transition such as solar panels and wind turbines is only just beginning.
China is likely to target European products which are sold well in China or that China controls such as dairy, pork, brandy, luxury goods, and critical minerals. China's previously curbed exports of germanium and gallium in response to the US export restrictions on semiconductors. China’s dominance in the production of several critical minerals has led to China using export controls to retaliate over US and EU technology export controls against China.
Conclusion:
EU-China trade tensions are growing partly due to Beijing’s close relationship with Moscow after Russia’s invasion of Ukraine and the EU’s push to ‘de-risk’ from the world’s second largest economy, including materials and products in the green transition. The idea of a looming trade war between EU and China is now commonplace. Both blocs could easily slide into raising tariffs across a whole range of goods and services. While the EU remains divided over how to improve competitiveness against both the US and China, Chinese companies will continue to bypass import tariffs by building auto plants in Hungary, Turkey and Morocco. As the EU has discovered in its barrage of sanctions against Russia, trade restrictions can easily be diverted to third countries yet still be imported across the continent.
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