China has various trade tools that could be used as countermeasures to hit the European Union’s automobile, agriculture and luxury sectors in response to the bloc’s tariff hike, but it could also be wary of consequences on bilateral ties, according to analysts.

The EU announced on Wednesday that it will raise tariffs on Chinese EVs by up to 38 per cent from July 4 after a seven-month probe revealed some of the world’s leading EV makers had undercut European competitors with the help of vast subsidies from the state.

The measure will target all EV imports from China, including those from BYD, Geely and SAIC, which accounted for more than a quarter of EV sales to Europe.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

The Chinese ministry of commerce said it would use “all necessary measures”, including preserving the right to bring the case to the World Trade Organization (WTO), to defend the rights of Chinese enterprises, arguing that the EU’s “protectionism” will affect economic cooperation between China and Europe, whose relations are already strained amid geopolitical tensions.

In a statement on Wednesday, the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) also said it will use “various means” to defend the EV makers, accusing the EU’s investigation of lacking transparency and having “serious flaws”.

Ding Yifan, a Europe specialist from the Chinese State Council’s Development Research Centre, said China had “prepared” retaliation against the EU tariffs in “various aspects”, including targeting European vehicles, luxury goods and agricultural products.

“Of course there are plans and preparations. How much have [our] interests been harmed by your tariffs, then how much [we] will retaliate against it,” he said.

Sebastian Contin Trillo-Figueroa, an EU-Asia specialist with the University of Hong Kong, agreed that China has different trade tools to respond with and “will retaliate where it can inflict the most damage”, such as restricting crucial raw materials that the bloc needs for its green transition.

“China has [previously] retaliated with export restrictions on those crucial raw materials such as gallium, germanium, graphite, and key rare earth elements … Beijing knows where it hurts most.”

Story continues

Trillo-Figueroa said Beijing could also target “high-value, symbolic or emblematic sectors”, such as brandy from France or pork imports from EU countries such as Spain, to exert economic pressure on respective industries that would “lobby their governments for resolution”.

The Global Times, a nationalist tabloid affiliated with the party’s mouthpiece People’s Daily, said on X on Thursday that Chinese industries filed a formal request for an anti-dumping investigation into pork imports from the EU, citing a business insider.

China’s ministry of commerce said earlier the day that the authorities would review any applications from domestic industries. If they meet the conditions for filing a case, the investigating authority will initiate the filing procedures and disclose to the public in accordance with the law, the ministry said.

Trillo-Figueroa added that bringing the EU to the WTO or seeking bilateral agreements with individual countries to bypass the EU tariffs could all be Beijing’s measures.

In Brussels, Beijing’s threats to file a WTO complaint were seen positively on Thursday. Commission officials had been expecting a reaction from China and feared that it could go after sensitive products such as farm goods or cars, which could help build political momentum against the EV probe. A WTO challenge is seen as a more predictable, rules-based form of retribution.

Commission lawyers, however, are keen to defend the probe in front of the world trade courts, given that they believe it was executed fully within the rules. One senior figure pointed to the fact that BYD and Geely will be paying lower tariff rates than some of their European competitors who also manufacture in China as evidence that it was fair and non-discriminatory.

China has already imposed export controls on raw materials that are critical for battery and chip production in response to the semiconductor restrictions from the US and its allies aimed at slowing Beijing’s hi-tech development.

Since the EU launched its anti-subsidy probe on Chinese EVs last October, China has also started a reciprocal investigation into French brandy exports to China, which amounted to US$2 billion last year.

France is believed to be a major backer behind the EU probe since Paris has long called for a level playing field for French businesses.

The European Commission, the executive arm of the EU, will have four months to collect opinions from member states before making the duties permanent, which Chinese analysts said also left them time to “bargain” with China.

Some EU nations have already voiced opposition to the EU probe. Germany, the biggest vehicle exporter to China, which is also heavily invested in China’s EV industry, is expected to be hit the most by possible retaliation from Beijing.

The German auto industry has long pressed Chancellor Olaf Scholz to try to avert the EU’s tariff hike on China. Car giants Mercedes-Benz, BMW, and Volkswagen all warned against the negative impacts that the EU decision could have on Europe’s auto industry.

Ding said it is uncertain whether the EU tariffs could become permanent as the bloc could rethink its trade policies towards China while it is being distracted by difficult agendas at home and abroad, such as the increasing presence of nationalist right-wing parties in its parliament, the war in Ukraine, and the possible re-election of Donald Trump, which could distance the US from its allies.

Wang Yiwei, an international relations professor specialising in EU-China relations at Renmin University in Beijing, said China would still be cautious while weighing retaliatory measures against the EU to avoid a full-blown trade war with the bloc and fuel a downward spiral in bilateral ties.

Last month, Chinese President Xi Jinping made his first European tour following the Covid-19 pandemic, which included stops in France, Serbia and Hungary, a move seen by many as China’s attempt to bolster ties with the continent despite growing tensions.

“The European Union is the most important [point] in the China-US-EU triangle, so we will not lose the EU market,” Wang said.

He said it is likely that China will propose solutions that better benefit Europe, including localising manufacturing of Chinese products.

“Not only in the upstream and downstream of electric vehicles [production], such as batteries, but also in cooperation on electricity … infrastructures like the 5G network and artificial intelligence … only if Europe’s competitiveness has improved and its industries and employment are assured, can China win over the European market,” he said.

Additional reporting by Finbarr Bermingham and Kinling Lo

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.