The European Union announced the imposition of temporary anti-subsidy tariffs on Chinese electric cars, reaching up to 38.1%. The Chinese Ministry of Commerce criticized the EU for its unilateral actions. Analysts believe that China does not want to engage in a trade war, as it would affect trade with the EU and further harm the Chinese economy. However, if Beijing does not abide by trade rules, the EU’s move to mitigate risks could become a trend.
On Wednesday, the EU announced the imposition of temporary anti-subsidy tariffs on imported electric cars from China. Among the 3 major Chinese automotive groups under investigation, BYD will face a tariff of 17.4%, Geely 20%, and SAIC Group, due to low cooperation in the investigation, will face the highest tariff of 38.1%.
The EU stated that if effective solutions are not reached through discussions with Beijing authorities, these temporary anti-subsidy tariffs will be enforced starting from July 4. The general tariff rate for car imports into the EU from various countries is 10%. With the additional anti-subsidy tariffs, the cost of exporting Chinese electric cars to the EU will increase between 27.4% to 48.1%.
Based on 2023 EU trade data, this additional cost amounts to billions of euros for car manufacturers, especially amidst slowing domestic demand and falling prices.
Following the news of the tariffs, the stock prices of some major European car manufacturers dropped. The STOXX Automobile Manufacturers Index fell by 0.4%, previously dropping by 1.6%.
According to the German blue-chip index, Volkswagen and BMW saw declines of around 1% to 1.8%. Porsche Holdings, a German luxury manufacturer, saw its stock price drop by over 7% due to dividend trading.
Jefferies analyst Philippe Houchois mentioned that German car manufacturers are feeling the impact of “retaliation fears.”
In October last year, the EU initiated an anti-subsidy investigation into Chinese battery electric vehicles (BEV) entering the EU market. As per regulations, the investigation must be completed within 13 months, with a possibility to impose temporary anti-subsidy tariffs on Chinese electric car exports to the EU after 9 months of initiating the investigation.
Prior warnings from EU leaders, such as von der Leyen, stated that if Beijing fails to provide fair market access for EU enterprises, the EU is prepared to use all available trade tools to defend its economy, emphasizing that the world cannot absorb China’s excess production.
The Chinese Ministry of Commerce criticized the EU’s actions as unilateral and stated that they will closely monitor further developments. They also pledged to take all necessary measures to defend the rights of Chinese enterprises.
Reacting to Beijing’s response, Professor Sun Guoxiang from the Department of International Affairs and Business at Taiwan’s Nanhua University, stated that if the EU only imposes symbolic tariff increases on certain EU products, it may not be enough to trigger a full-fledged trade war with the EU.
“Beijing does not want to confront both the US and EU simultaneously. President Biden has already imposed a 100% tariff on Chinese electric cars, so if a similar scenario unfolds in the EU, it could further harm China,” Sun Guoxiang said.
However, if it escalates into a trade war between China and the EU, Beijing will most likely react strongly initially. “But personally, I think they will handle it cautiously since China still hopes to engage in trade with the EU through initiatives like the Belt and Road or China-Europe rail lines,” he added.
In recent times, the Chinese Ministry of Commerce has held meetings with Chinese-funded enterprises in Spain, Portugal, Greece, among other places. Xinhua, the official Chinese news agency, has called for dialogue and negotiations between China and the EU to properly address economic and trade friction, advocating for a win-win cooperation and avoiding escalating trade tensions.
With the EU imposing tariffs, Wang Xiaowen, Assistant Researcher at the Taiwan Institute for National Defense and Security Studies, stated that this would diminish China’s competitive advantage in the EU electric car market. However, post-tariffs, the prices of electric cars should still be cheaper than EU-produced electric or fuel cars.
Furthermore, if Chinese car companies are unable to expand their overseas market share due to the tariffs, it could lead to bankruptcies within the industry and exacerbate the challenges facing the Chinese economy.
Therefore, Wang Xiaowen believes that the Beijing government will not sit idly and is likely to retaliate strongly. The trade war between China and the EU is expected to intensify.
He mentioned, “If a massive wave of unemployment occurs due to tariffs and Chinese car company bankruptcies, the Beijing government may need to enhance social stability measures. However, this could also provide grounds for criticism against Xi Jinping, leading to potential repercussions for Li Keqiang’s administration.”
However, Wang Xiaowen also noted that the China-EU trade war may not last long, as the EU is unlikely to completely block the sale of Chinese electric cars in Europe. Driven by technological and diplomatic needs, China is expected to resume importing European goods after a period of economic retaliation against the EU.
“All of this will likely lead to a decline in China’s overall economy this year, especially in the export sector, causing a drop in data,” he concluded.
Since 2023, the EU has been actively promoting a “risk reduction” strategy. The dynamics of EU-China trade have shifted, with the EU aiming to reduce reliance on Chinese manufacturing while China still requires EU resources like advanced technology.
Wang Xiaowen believes that the EU’s risk reduction strategy will continue to advance as it is a critical issue for economic security.
Chinese investments in Europe have also been decreasing. The Mercator Institute for China Studies and Rongding Group recently reported a decline in Chinese direct investments in Europe last year, totaling only 6.8 billion euros, a 300 million euro decrease compared to the previous year, marking the lowest since 2010.
The majority of investments were directed towards electric vehicles and their supply chains, accounting for 41% of China’s investment in Europe in 2022, which increased to 69% last year.
However, factors such as weakening financial performance of Chinese enterprises, increased scrutiny on Chinese investments by European countries, and escalating trade tensions between China and the EU are expected to keep Chinese investments in Europe in a state of stagnation.
Regarding the political impact of the EU’s tariffs on China, Sun Guoxiang believes that the current impact is not significant. He argued that the more pressing issues for China, such as the real estate market and local debt problems, are causing greater internal challenges for the Beijing government.
“On the contrary, I believe that the electric vehicle sector can potentially serve as a source of legitimacy and credibility for the Beijing regime. The real estate sector is a more critical concern stemming from China’s internal supply and demand issues, which may pose a greater threat to the Beijing government,” he concluded.