A recent analysis has revealed the impact of the European Union’s imposition of tariffs on Chinese electric vehicles. The analysis indicates that the new tariffs could result in the Chinese Communist Party losing nearly $4 billion in trade with the EU.
On Friday, May 31st, the Kiel Institute for the World Economy in Germany published a study suggesting that applying a 20% tariff on imported Chinese electric vehicles by the EU could significantly affect bilateral trade and production between Europe and China. The quantity of electric vehicles imported from China may decrease by 25%. Based on nearly 500,000 cars imported in 2023, this equates to approximately 125,000 cars worth nearly $4 billion.
According to the study, the increase in production within the EU and the reduction in exports of electric vehicles may largely offset the decrease from imports from China.
The European Commission initiated an investigation in October last year into whether Chinese electric vehicles benefited from “illegal subsidies.” If substantiated, the EU could impose anti-subsidy tariffs exceeding 10%. In early March this year, the European Commission stated that there was “sufficient evidence” that Chinese imported electric vehicles had been subsidized, including direct fund transfers, tax exemptions, or providing goods or services below market prices.
It is expected that the EU will implement temporary tariffs next month. Although the original announcement date was set for June 5th, rumors suggest that the publication will be delayed until after the European Parliament elections.
German Foreign Minister, Annalena Baerbock, in an interview with the “Commerce News,” said, “I don’t want us to once again be taken advantage of because of our naivety, to be treated cruelly, we must protect our own interests.” She was referring to Germany’s past dependence on Russian energy.
Moritz Schularick, the Director of the Kiel Institute, stated, “Given China’s subsidies, the EU Commission’s right to impose tariffs is justified. It is crucial that the authority of the EU Commission is not weakened by individual member states for certain interests because a divided EU is a weak EU.”
China’s primary export destination for electric vehicles is currently EU countries, with tariffs ranging from 5% to 10%. Over the past three years, Chinese exports of electric vehicles to Europe increased by an astounding 851%.
The simulations by the Kiel Institute demonstrate that applying a 20% tariff on Chinese electric vehicles by the EU will result in significant shifts in trade. Electric vehicles worth about $3.8 billion will no longer be imported from China to the EU, potentially impacting German car manufacturers producing in China. Sales of electric vehicles produced internally within the EU could increase by nearly the same amount, around $3.3 billion. However, the increase in domestic production within the EU may only partially offset this, with approximately $1 billion worth of cars possibly redirecting from exports to domestic sales.
The study noted that it did not account for potential retaliatory measures that China might take, which is anticipated. If the EU decides to implement punitive measures, with the tariff levels still unclear, Beijing has indicated its readiness to impose tariffs as high as 25% on imported high-volume EU cars.
However, Kurt Campbell, the Deputy Secretary of State, suggested on Wednesday, May 29th, that China’s weakening economy might hinder its ability to retaliate as severely as before. He emphasized that coordinated tariffs on Chinese vehicles by various countries would make it harder for China to retaliate individually.
Julian Hinz, a trade researcher at the Kiel Institute, mentioned that due to significantly higher production costs in Europe, including rising energy and material prices and notably increased labor costs, any tariff could potentially lead to price increases for consumers of electric vehicles.
The study also highlighted that European automotive manufacturers filling the gap from reduced imports is not a foregone conclusion. Chinese manufacturers like BYD could also meet local demand by establishing new factories in Europe.
The simulations in the study were based on the Kiel Institute’s KITE model. The results suggest that establishing new trade structures and supply chains will generate persistent medium- to long-term trade effects. Short-term distortions were not considered in the model.
On May 25th, Adolfo Urso, the Italian Minister of Business and Manufacturing, stated that “If we don’t want European industry to be eradicated, higher tariffs on Chinese products are inevitable.”
Urso particularly mentioned the automotive industry, saying that a significant increase in US tariffs could lead to China redirecting exports to Europe, thereby harming EU industries.
The US government has maintained tariffs implemented during the Trump administration and raised tariffs on other Chinese goods, including raising tariffs on electric vehicles fourfold to over 100% and on semiconductors doubling to 50%.