The EU has decided on punitive tariffs for electric cars from China, and they will come into force tonight. Actually. Why the negotiations are continuing anyway – and China does not have to pay directly.
The EU Commission is serious: On Friday night it will introduce provisional punitive tariffs on exports of electric vehicles “made in China”. This is stated in the EU Official Journal. The European Union (EU) is thus confirming its decision from June: According to this, manufacturers in the People’s Republic must pay up to 37.6 percent in provisional extra duties if no negotiated solution has been reached by July 4. Beijing and the EU Commission were recently in talks about the tariffs with which Brussels wants to protect domestic competitors from a flood of subsidized vehicles.
China denies the accusation of subsidies and threatens extensive countermeasures. According to government sources, Germany is against the EU plans. German car manufacturers made a third of their sales in the People’s Republic last year. France, on the other hand, is among the supporters, as are Italy and Spain.
Why are the tariffs provisional?
The tariffs will be levied from Friday midnight through a security deposit – conceivably like a security deposit. Whether the EU actually keeps this will depend on whether another solution can be found with the government in Beijing in the coming months. This second deadline expires in November at the latest. By then, the EU states must decide whether to introduce permanent tariffs – which would then possibly result in the provisional surcharges being collected retroactively.
What exactly did Brussels decide in June?
According to international trade rules, Brussels is claiming the right to increase EU import tariffs on Chinese electric cars because China’s government is unduly supporting domestic car manufacturers. The EU wants to protect the local car industry from artificially cheap imports, but it is falling far short of US tariffs of more than 100 percent because it wants to adhere to the rules of the World Trade Organization (WTO). Brussels considers possible countermeasures to be unacceptable.
Have China and the EU negotiated seriously?
The EU Commission and Chinese negotiators have reportedly been holding talks since last week. Brussels had made it clear that, as a prerequisite for a negotiated solution, it expected a contribution from Beijing to such technical talks by July 4, which would set out a roadmap for reducing the criticized harmful subsidy practice for the construction of electric cars.
The Reuters news agency reported on a confidential meeting between the Chinese state-owned company SAIC and the market leader BYD as well as BMW and Volkswagen. However, an amicable solution was apparently not in sight.
Which car company has to pay how much punitive tariff?
Depending on the manufacturer and willingness to cooperate in the formal EU procedure, different surcharges will apply in addition to the ten percent that has previously applied: According to the EU investigation, the BYD Group will be subject to the most favorable rate of 17.4 percent due to good cooperation and lower subsidies, while the Geely Group will have to pay an additional 19.9 percent tariff. SAIC from Shanghai, known in Europe for the MG brand, will be charged an additional 37.6 percent due to a lack of cooperation. Tesla, whose Model 3 for Europe rolls off the production line in Shanghai, was recently threatened with an additional 21 percent tariff.
Western manufacturers that manufacture in China are also affected, including Volvo with the compact SUV EX30. The Swedish carmaker Volvo has been part of the Chinese car conglomerate Geely since 2010. From next year, Volvo plans to build the car in its Belgian plant in Ghent. For Volvo’s imports into the EU, the Geely rate will now be added on top.
Why is there a second deadline until November?
Because the sensitive issue of the tariff confrontation with China is highly controversial among governments and car manufacturers, EU members are expected to issue an initial recommendation in the next few weeks – and provide the EU Commission with a direction. As Reuters reported after a survey on Wednesday, numerous EU states are still undecided as to whether they should support the special tariffs on Chinese electric cars. The majority are still weighing up the pros and cons of an escalating trade dispute with the world’s second largest economy, it is said. This group includes Greece, the Czech Republic, Ireland and Poland, as well as Belgium’s transitional government and the Netherlands. France and Spain are among those who are in favor of tariffs.
According to the EU roadmap, a final decision on the new import restrictions is to be made in the autumn – that is, for an initial period of five years. They could be blocked if a “qualified majority” of at least 15 member states and 65 percent of the EU population vote against them. After all, the automotive industry employs around 15 million people in Europe.
What position does the German car industry take?
The domestic auto industry rejects the punitive tariffs as harmful protectionism that is not effective for either the EU or Germany. China is the largest car market in the world and, according to the VDA association, was the third largest export market for cars from Germany in 2023 after the USA and Great Britain. A third of the vehicles exported fall into the category of more than 2.5 liters of displacement, which would be eligible for possible Chinese import tariffs.
Commenting on the anti-subsidy investigation, BMW Group CEO Oliver Zipse said: “The introduction of additional import tariffs leads to a dead end.” Instead of strengthening the competitiveness of European manufacturers, it damages the business model of globally operating companies, restricts the supply of electric cars for European customers and could even slow down decarbonization in the transport sector. “Such measures are a serious interference with the principle of free trade, which is also propagated by the EU.” Volkswagen and Mercedes have taken a similar position in recent weeks.
Why are BMW, Mercedes and Co. so tame?
Countermeasures from Beijing would harm the German automotive industry much more than the tariffs would help. There are fears that the tariffs will trigger a mutual escalation of trade restrictions. This could then set off a spiral and ultimately affect other sectors as well.
The background is also a strong dependency: According to the VDA, cars worth 15.1 billion euros were exported from Germany to China in 2023; imports were worth 4 billion euros. Auto suppliers exported parts worth 11.2 billion euros to China, four times as much as was imported from China.
The increase in import duties on German luxury cars with an engine capacity of more than 2.5 liters, threatened by China, would hit German car manufacturers hard. Around 120,000 of the cars exported from Europe to China belong to this segment.
How is the federal government behaving?
The German government is not very keen on the punitive tariffs on electric cars from China and, even with allies such as Sweden and Hungary, and perhaps also the Czech Republic and Slovakia, it is unlikely to have any chance of overturning the Brussels vote. According to reports, Chancellor Olaf Scholz (SPD) has proposed a deal between China and the EU, according to which a uniform tariff of 15 percent could apply to Chinese and European car exports. The EU Commission is said to have dismissed the idea: “not an option”.
Will China retaliate with tariffs?
Some hopes are that Beijing could respond with limited countermeasures, mainly targeting luxury goods from France and Italy. Then the resistance would mainly hit the countries that had pushed hardest for the tariffs. Beijing fundamentally doubts the results of the subsidy investigation and describes the export offensive for electric cars in the context of a mature industry that is now taking advantage of its export opportunities, just as Western industry has been doing in China for decades. Apart from the start of an anti-dumping investigation into imported pork from the EU, it has so far only made threatening gestures.
According to the Chinese Ministry of Commerce, an assessment by Beijing that could lead to further countermeasures is in full swing. Details will follow in due course, it said recently.
Is there really a threat of a flood of Chinese electric cars in Europe?
It was Commission President Ursula von der Leyen who spoke of China “flooding Europe with cheap electric cars”. Across Europe, the share of cars “Made in China” in the electric car market in 2023 was 19 percent, in Germany 15 percent. More than half came from Western manufacturers such as Tesla, BMW or the Renault subsidiary Dacia, which manufacture all cars for Europe in China.
Current export expectations of Chinese manufacturers are not being fulfilled. Industry experts believe that the big wave of exports will not start until 2026. The German automotive industry estimates that the share of Chinese electric cars in the European passenger car market will settle at around five to ten percent by 2030.
Source: Stern
