German Economy Minister is set to begin his visit to China on Friday, June 21, amid warnings from Beijing that ongoing tensions between China and Europe over electric car imports could escalate into a trade war.
Experts suggest that both economic and political factors are increasingly favoring Germany to reduce its reliance on China and pivot towards the United States.
Robert Habeck, the German Economy Minister, arrived in Beijing for a three-day visit, with the proposed EU tariffs on electric vehicles being a key agenda during his trip.
Recently, the EU proposed imposing high tariffs on cheaply imported electric cars from China to combat unfair competition caused by excessive subsidies. Habeck is the first senior European official to visit China since then. The EU’s anti-subsidy measures have triggered retaliatory actions from the Chinese government.
This week, China initiated a dumping investigation into EU pork imports in response to the EU Commission’s imposition of additional tariffs.
According to Reuters, a spokesperson from the Chinese Ministry of Commerce stated in a press release that “the responsibility lies entirely with the EU.”
The statement also mentioned that the information demanded by the EU in the anti-subsidy investigation was overly broad. Chinese car manufacturers have urged Beijing to impose tariffs on imported European gasoline-powered cars this week.
During his visit, Habeck aims to explain to Chinese officials the reasons behind the EU’s recently announced tariffs and also to mitigate potential risks of Chinese retaliation against German companies, which are the EU’s largest economy.
The interim tariffs announced by the EU will come into effect on July 4, and the anti-subsidy investigation initiated in October last year will continue until November 2 this year. The final tariffs, usually lasting five years, will be determined at the end of the investigation.
German car manufacturers are most vulnerable to Beijing’s countermeasures, as nearly one-third of their sales came from China last year. However, experts point out that Germany is moving away from China’s “unfair” trade practices and towards the United States.
Last Wednesday, after months of the anti-subsidy investigation, the EU Commission announced that it would impose an additional tariff of up to 38.1% on imported Chinese electric cars starting next month.
Nadine Schinas, Vice President of the EU Commission, stated in a press conference that cars manufactured in China benefit from unfair subsidy standards, posing a threat to EU producers.
As the EU implemented tariffs on electric cars, European car manufacturers are facing the challenge of an influx of cheap Chinese electric cars into the EU market.
Data from the non-government organization “Transport & Environment” shows that in 2023, 19.5% of electric cars sold in Europe were manufactured in China, many of which were branded vehicles from Western manufacturers like Tesla, Dacia, or BMW. This year, the market share of Chinese brands like BYD and MG is estimated to reach 11%.
The EU’s measures on electric car tariffs have strained the trade relationship between the EU and the world’s second-largest economy.
Chinese state media suggests that Habeck’s visit could defuse tensions. The Chinese state-run newspaper Global Times reported on Friday that some experts believe Germany should seek consensus.
After arriving in Beijing, Habeck is expected to meet with ambassadors from several EU countries and hold talks with Li Keqiang and other Chinese officials.
He will also meet with industry minister Jin Zhuanglong and commerce minister Wang Wentao before heading to Shanghai and Hangzhou.
Earlier on Friday, Habeck tempered expectations of resolving issues during his visit, stating that he does not anticipate reaching a solution on trade tensions.
Germany has expressed its intention to reduce its overall trade exposure to China. In its first strategic paper on China last year, Germany criticized China’s “unfair practices.”
Trade experts indicate that economic and political factors currently favor the development of relations between Germany and the United States.
In the first quarter of 2024, trade between Germany and China totaled 60 billion euros (approximately 64 billion dollars), which is lower than the 63 billion euros in trade between the US and Germany. This marks a shift from China being Germany’s largest trading partner for eight consecutive years.
Official figures released on Friday highlight this transition: German exports to China decreased by 14% year-on-year in May, while exports to the USA increased by 4.1%.
Juergen Matthes, Head of International Economic Policy at the IW Institute for Economic Research in Germany, believes that the paradigm of Sino-German relations is beginning to shift away from the “intimate” relationship nurtured by former Chancellor Angela Merkel in the 2000s.
He stated, “Also driven by geopolitical motives, a repositioning seems to be taking place: moving away from the systemic competitor China, towards the transatlantic partner, the United States.”
If Donald Trump wins the US presidential election in November and pushes for increasing import tariffs to boost and protect domestic industries as part of the “Make America Great Again” agenda, it would pose a serious commercial and geopolitical choice for export-oriented economies like Germany.
According to the International Monetary Fund, in the long run, this could potentially split the world into two incompatible trading blocs.
Consulting firm Roland Berger’s Global Managing Partner Stefan Schaible stated, “Trump will force Europeans to decide which side to take – China or the United States.” He added that without a doubt, Germany will have to choose its NATO ally.
Germany also expressed hopes to deepen its relations with partner countries like South Korea.