With billions of dollars of trade at stake, China and the European Union have agreed to hold talks to resolve their escalating tariff dispute.
China's Commerce Ministry said late Saturday that China's Commerce Minister Wang Wentao and European Union Trade Commissioner Valdis Dombrovskis will meet to discuss the EU's plans for tariffs on Chinese-made electric cars.
Hours earlier, German Vice Chancellor and Economy Minister Robert Herbeck said the European Union was open to talks and hoped tariffs could be avoided.
This month, the European Commission, the European Union's executive body, proposed imposing tariffs of up to 38% on electric vehicles from China, on top of the current 10% tariff on imported cars. The Commission said it found that China's electric vehicle sector is heavily subsidized by the government and state-run banking system. Chinese electric vehicle exports are a growing challenge for European automakers.
Speaking in Shanghai after the Beijing meeting, Habeck defended the tariffs. “These tariffs are not punitive,” he said, adding that the duties were aimed at offsetting subsidies that violate World Trade Organization rules.
It's unclear what a trade deal might look like. Executives at Volkswagen and other European automakers have called on Chinese manufacturers to build cars in Europe, with European workers earning European wages, rather than importing them from China.
But Chinese automakers, with what the European Union says are heavy subsidies, have already built dozens of electric vehicle factories in China and continue to build more.
Chinese Commerce Minister Wang, who met with Harbeck, accused the European Union of violating WTO rules before agreeing to the talks late on Saturday.
“China will take all measures to safeguard the legitimate rights and interests of Chinese enterprises,” the National Development and Reform Commission, China's top economic planning agency, said in a statement, adding that the tariffs were inconsistent with international efforts to tackle climate change.
The tariffs put Germany in a tricky position: German automakers have large operations in China and are concerned about being hurt by retaliatory trade measures from Beijing.
On Saturday, Habeck visited several Chinese economic ministries in Beijing but did not meet with China's No. 2, Premier Li Qiang. He then flew to Shanghai, where he held a press conference and met with German business leaders. He declined to comment on why he did not meet with Li, who is in some ways his counterpart.
Habeck criticized China for supplying Russia with goods that have both civilian and military uses in Russia's war in Ukraine. Trade between China and Russia grew more than 40 percent last year, and half of the increase was related to dual-use goods, he said.
“These are technological products that can be used on the battlefield and this kind of behaviour must stop,” he said.
But the trade dispute was the focus of Mr Habeck's visit, who visited a BMW research centre in Shanghai on Sunday before heading to the technology hub of Hangzhou.
World Trade Organization rules allow tariffs to be used to offset subsidies, but China denies it is unfairly subsidizing its electric-vehicle companies and says its global lead in the industry is the result of efficient manufacturing and innovation.
In anticipation of the tariffs, China's commerce ministry took the first step in January to impose tariffs on imports of cognac and wine-based spirits. These spirits are mainly produced in France, which has been one of the leaders in imposing tariffs on Chinese-made electric cars. China's commerce ministry also warned on Monday that it would impose tariffs on pork imports from Europe.
And Chinese state media reported last week that China's auto industry is calling on the Commerce Ministry to impose tariffs on imports of gasoline vehicles from Europe, a move that would mainly affect German automakers.
“We hope Germany will play an active role in the EU and encourage the EU and China to move closer to each other,” the commerce ministry said in a statement on Saturday.
In China, the world's largest auto market, imports of German cars have nearly halved over the past five years as domestic automakers have become more competitive. Chinese automakers dominate the world's production of electric cars and plug-in hybrid gasoline electric cars, which now roughly match sales of gasoline cars in China.
But many of China's wealthy customers still covet German brands: Mercedes sells more of its top-of-the-line German-made Maybach cars in China than it does in the rest of the world combined.
German automakers also have joint ventures with Chinese companies to assemble cars there, and Volkswagen has begun cutting jobs in Germany while investing more heavily in manufacturing and engineering in China.
Germany is crucial to China's efforts to block new European Union tariffs from being finalized this fall, as it was the case the last time China and Europe had a major trade dispute.
In 2013, under pressure from China, Germany rallied European governments to reverse the European Commission's proposed tariffs on Chinese solar panels. Chinese solar panel manufacturers quickly overwhelmed Europe, and the European industry collapsed.
European leaders who are pushing for tariffs on Chinese electric vehicles argue that Europe's auto industry now faces a similarly serious threat.
To block the tariffs, China would need to persuade a majority of European Union member states – accounting for at least 65 percent of the EU's population – to overturn the European Commission's decision.
Analysts say China is likely to target major countries in response to the European tariffs.
Tariffs on gasoline cars would hit Germany, the EU's most populous country, which accounts for 19% of the population. Italy, the third most populous country, also exports premium gasoline vehicles to China, including Ferrari and Lamborghini sports cars.
France is the second-most populous country in Europe, and China's potential tariffs on Cognac are aimed at one of the country's national symbols.
Spain, Europe's fourth-most populous country, is Europe's biggest exporter of pork to China and Beijing has also threatened to impose fines on the product.
In the 1980s, the Chinese government allowed German automakers, led by Volkswagen, to open car factories with Chinese manufacturers, avoiding China's 100% tariffs on imported cars at the time. After China joined the World Trade Organization in 2001, it lowered tariffs on imported cars to 25% and further reduced tariffs on most imported cars to 15% in 2018 under the Trump administration in a move to ease trade frictions with the United States.
On top of the 15% tariff, China also levies a 10% tax on buyers of gasoline-powered vehicles, with an additional 40% tax levied on passenger cars and sports utility vehicles with extra-large gasoline engines, which are mainly imported.
Li Yu and John Liu contributed to the research.
