The European Union has hiked tariffs on electric cars imported from China, drawing a rebuke from Beijing, which sees the bloc as a vital and growing market for its auto industry.
The new tariffs of between 17.4% and 38.1% will come on top of the existing EU tariff of 10%, according to a statement from the European Commission. That takes the highest overall duty to close to 50%.
The provisional decision follows an investigation into China’s state support for electric vehicle makers. The European Commission, the EU’s executive arm, launched the probe in October to establish whether Chinese EV prices are artificially low because of subsidies and so hurt European carmakers.
The Commission said its investigation had provisionally concluded that the EV industry in China “benefits from unfair subsidization, which is causing a threat of economic injury.”
The sharp increase in tariffs highlights the more protective stance on trade with China that Brussels and Washington are adopting. Western officials are concerned that jobs and strategically important industries could be wiped out by cheap Chinese imports. The EU is also probing China’s support for wind turbine companies and solar panel suppliers.
The Commission has applied differing levels of duties to three major EV makers. BYD — which jostles with Tesla (TSLA) for position as the world’s biggest seller of battery EVs — has the lowest additional duty at 17.1%.
Geely, which owns Sweden’s Volvo, has been hit with an extra 20% tariff and SAIC with another 38.1%. As for other EV makers in China, those that cooperated with the EU investigation will see a 21% additional duty, while those that did not will be subject to an extra 38.1% duty.
Tesla, which manufactures many of its cars in China, could receive an “individually calculated duty rate” at a later stage “following a substantiated request” lodged by the carmaker, the Commission said.
Trade war brewing?
The new EV tariffs are likely to kick off intense negotiations between Beijing and Brussels aimed at averting a damaging trade war. The EU must decide by November whether to adopt the tariffs permanently.
Beijing’s reaction to the tariffs “could lead to a trade war (with Europe), which would be devastating for a region that is still heavily dependent on Chinese-dominated supply chains in order to achieve its lofty climate goals,” Will Roberts, head of automotive research at consultancy Rho Motion, said in a statement Friday.
Responding to the EU announcement, China’s Ministry of Commerce accused the bloc of “creating and escalating trade tensions” and said the move would hurt European consumers. It vowed in a statement to take “all necessary measures to firmly defend the legitimate rights and interests of Chinese companies.”
There are also risks for European automakers. Many of them manufacture cars in China and then sell them in Europe, a set-up that will be more costly as a result of the higher tariffs.
In addition, Germany’s carmakers rely heavily on China for sales, and a retaliation by Beijing could make life harder for them.
“Beijing is likely to use both carrots and sticks to build opposition to the Commission’s case, in the hopes that a sufficiently large group of (EU) member states… emerges in order to block permanent duties,” analysts at Rhodium Group, a think thank, said in a recent research paper.
For example, China could raise tariffs on EU vehicle imports to 25%, from their current level of 15%, or target other European exports such as wine and luxury goods, according to Rhodium.
Beijing has already launched an anti-dumping investigation into brandy imported from the EU and could impose tariffs that would hit French cognac makers.
Alternatively, Beijing could pledge investment into EU countries and promise better market access in China for EU firms, the Rhodium analysts wrote.
EU member states, meanwhile, are divided on the tariffs. While France and Spain are in favor, politicians and auto industry executives in Germany are firmly opposed.
Speaking Saturday, German Chancellor Olaf Scholz said protectionism and isolation “ultimately just makes everything more expensive and everyone poorer.” He added: “We do not close our markets to foreign companies because we do not want that for our companies either.” Europe is already the main destination for Chinese EV exports. Last year, the value of EU imports of electric cars from China stood at $11.5 billion, up from just $1.6 billion in 2020, according to Rhodium Group.
The pressure to protect European automakers grew more urgent last month after Chinese EVs were all but priced out of the United States. President Joe Biden quadrupled import duties on Chinese EVs to 100% as part of a sweeping package of tariffs on goods from China, including semiconductors and batteries.
Given the competing priorities that European officials had to consider, they could not be as heavy-handed in their approach.
In a report in April, Rhodium Group analysts said duties of 40%-50% would probably be necessary “to make the European market unattractive for Chinese EV exporters,” given their much lower production costs.
China’s EV makers, meanwhile, could find ways around the tariffs. BYD pledged in December to open a factory in Hungary, an EU member. That would be BYD’s first plant for passenger cars in Europe.
Olesya Dmitracova and Mark Thompson in London, and Shawn Deng and Alex Stambaugh in Hong Kong contributed reporting. This story has been updated with additional information.
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