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 tariff increases announced on Wednesday are provisional and will take effect from July 4. The tariffs on the three major Chinese manufacturers, including BYD, Geely and SAIC, will range from 17.4% to 38.1%. The tariffs were calculated based on the level of cooperation with European authorities, who have been investigating the level of support given by the Chinese government to 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.”
The European Commission, the EU's executive arm, has launched an investigation to see 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.
The EU said it had been in contact with Chinese authorities “to discuss these findings and explore ways of resolving the issues identified”, leaving open the possibility of an agreement.
Tesla, which makes the Model 3 and Model Y in Shanghai for the European market, said it had petitioned for tariffs on its cars to be calculated separately, and the EU has given other companies seeking separate review nine months to submit petitions.
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.
Chinese auto giant BYD aims to become Europe's top electric vehicle manufacturer by 2030. Late last year, it chose Hungary as the planned location for its first assembly plant in the EU. The company 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.
During a visit to Spain last week, China's Commerce Minister Wang Wentao rejected Brussels' accusations of unfair competition and called on the European Union to support cooperation and trade based on World Trade Organization rules.
“We welcome healthy competition but firmly oppose any malicious attempts at suppression,” Wang said.
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.
“For me, tariffs are a short-term issue,” Volkswagen Chief Operating Officer Arno Antlitz said in a social media post last month. “Our Chinese competitors are planning to produce cars in Europe and localize the competition, and we need to prepare accordingly.”
