After an anti-subsidy investigation, the European Union has decided to impose a maximum tariff of 45.3% on electric vehicles produced in China. China, on the other hand, is attempting to retaliate against the EU countries through targeted investments and retaliatory taxation measures. The possibility of a trade war between China and the EU remains to be seen.
The European Commission, after concluding the anti-subsidy investigation on electric vehicles from China, has decided to impose a final anti-subsidy tax on pure electric vehicles (BEV) imported from China for a period of five years. According to an announcement posted on the EU Commission’s official website on October 29, these tariffs came into effect on October 30.
The announcement stated that among the three Chinese car manufacturers sampled by the EU, BYD will be subject to a 17% anti-subsidy tax; Geely will face an 18.8% anti-subsidy tax; and SAIC Group will be levied a 35.3% anti-subsidy tax.
Companies that cooperated with the EU investigation but were not sampled will face a 20.7% tariff. After submitting a well-founded request for an individual review, Tesla will be subject to a 7.8% tariff.
All other non-cooperative companies will be subject to a 35.3% tariff.
These anti-subsidy taxes are additional charges on top of the EU’s standard 10% tariff on imported vehicles, thus resulting in the highest tariff of 45.3% for pure electric vehicles produced in China.
Valdis Dombrovskis, Executive Vice President of the European Commission, stated, “After a thorough investigation, we have taken these moderate and targeted measures to uphold fair market behavior and the foundation of European industry.”
The EU Commission mentioned that Chinese electric vehicles are generally priced 20% lower than European-made products. Dombrovskis emphasized that the EU “welcomes competition but it must be based on a level playing field.”
The EU initiated the anti-subsidy investigation on Chinese electric vehicles back in September of last year. After nine months of investigation, it was found that Chinese car manufacturers received various forms of subsidies, including low-interest loans, cheap land, and direct incentives for selling electric vehicles. These companies also received assistance in battery costs, which is the most expensive component of electric vehicles.
The EU Commission pointed out that the market share of Chinese-made electric vehicles in terms of sales jumped from 3.9% in 2020 to 25% in September 2023, partly due to their unfair pricing practices.
The investigation report also stated that China has an idle capacity of 3 million electric vehicles per year, which is twice the size of the EU market. Given that the US and Canada impose a 100% tariff on Chinese electric vehicles, the most obvious alternative market for these vehicles is Europe.
The conclusion of the investigation report highlighted the “substantial harm and threat” that European auto manufacturers are facing, which is apparent and pressing.
The European automotive industry accounts for 7% of the EU’s GDP, employing nearly 14 million people in the sector. Previously, the Chinese subsidies for solar panels had put European producers in dire straits, and the EU evidently does not want to repeat the same situation.
Following the announcement of these results by the EU, a spokesperson from the Chinese Ministry of Commerce responded on October 31, stating that they “do not agree, do not accept” the decision. They argued that the EU’s actions under the guise of “fair competition” actually constitute “unfair competition” and described the EU’s move as “protectionist.”
Prior to the EU’s announcement, China had also initiated retaliatory investigations on brandy, dairy products, and pork products from Europe.
Before the EU released its decision, both the EU and China had held eight rounds of technical negotiations to find alternative tariff solutions. Even though the tariffs have now been finalized, the EU Commission stated that negotiations could still continue. However, the initial voting results within the EU may provide China with some leverage.
In early October, during an internal EU vote on raising tariffs on Chinese electric vehicles, ten EU member states supported the proposed tariff increase, five member states voted against it, and twelve member states chose to abstain.
According to EU procedure rules, it would require fifteen member states (accounting for 65% of the EU population) to oppose the decision in order to overturn it.
The ten countries that voted in favor included France, Ireland, Italy, Lithuania, Bulgaria, Denmark, Estonia, Latvia, the Netherlands, and Poland.
The five countries that voted against were Germany, Hungary, Malta, Slovenia, and Slovakia.
The twelve countries that abstained were Sweden, Spain, Belgium, Czech Republic, Greece, Croatia, Cyprus, Luxembourg, Austria, Portugal, Romania, and Finland.
These EU member states could potentially become targets for China to pursue, divide, or retaliate against.
According to sources familiar with the matter, the Chinese Ministry of Commerce has reportedly instructed Chinese automakers to cease large-scale investments in European countries that support the tariffs, to proceed with caution in investing in countries that abstained, and to encourage investments in countries opposing the tariffs.
The sources also indicated that automakers were advised to avoid engaging in individual investment discussions with European governments and instead conduct collective negotiations.
Given the unique relationship between the government and businesses under the Chinese Communist Party, official instructions from the government are nearly equivalent to commands. China’s government measures appear to be aimed at gaining leverage in negotiations with the EU.
During a visit to China by Spanish Prime Minister Pedro Sánchez in September, a Chinese company signed a cooperation agreement with the Spanish government to invest $1 billion in building a hydrogen equipment factory in Spain. Spain is one of the twelve EU countries that abstained from voting on the tariffs.
BYD, a Chinese company, is currently constructing an automobile production plant in Hungary and plans to build a battery assembly plant in Hungary as well. The company is also considering relocating its European headquarters from the Netherlands to Hungary. Hungary is one of the five EU countries that voted against the tariffs.
Germany, the largest economy in the EU, also voted against the tariffs. Sun Guoxiang, a professor at the Department of International Affairs and Business at Nanhua University in Taiwan, told Epoch Times that one of the main reasons is Germany’s economic interests in China. Germany has a high reliance on trade with China, particularly in the automotive industry where it holds a significant market share in China. Germany is concerned that this tariff policy will harm its own interests.
The US government had announced back in May that it would quadruple tariffs on Chinese-produced electric vehicles, raising them from 25% to 100%. Despite strong protest from the Chinese side, no apparent retaliatory measures were taken, in stark contrast to China’s response to the EU. Sun Guoxiang stated on November 1 that there are several reasons for this disparity.
He explained that the differing levels of dependence between China and the two parties play a critical role. The EU market is highly crucial for Chinese electric vehicles, especially major European economies like Germany, which are key export destinations for Chinese electric vehicles. The demand for Chinese electric vehicles in the European market is also significant, making the EU’s tariff policy a direct threat to the profitability and market share of Chinese electric vehicle companies. In contrast, the US market is less important to Chinese electric vehicle manufacturers, and although an increase in US tariffs would impact some exports, the overall market impact is limited.
Sun Guoxiang further elaborated on the differences in diplomatic relations between China and the US versus China and the EU. The tensions between the US and China are high across various sectors, including trade, technology, military, and geopolitical confrontations, making it challenging for China to change US policies even if retaliatory measures were taken. In comparison, relations between China and the EU are relatively stable, and China aims to maintain cooperation with the EU. Therefore, China has adopted targeted and sophisticated countermeasures to pressure the EU internally, employing a strategy of divide and conquer.
Sun Guoxiang also pointed out that China’s investments and trade reliance in the European market give it a certain level of influence. China believes that by controlling the scale of its investments, it can influence some European countries, prompting them to adopt a more temperate stance towards China in their policies.
When the US imposed tariffs on Chinese electric vehicles, they cited concerns beyond protecting domestic industries, including risks related to national security such as supply chain security, data security, communication security, and reducing reliance on critical technologies. However, the EU’s announcement only mentioned protecting industrial security.
Regarding this, Sun Guoxiang stated that EU member states have varying approaches to tackling China’s stance. Some countries emphasize economic cooperation, while others are more cautious about national security risks. This internal division leads to the EU not clearly expressing security concerns in public policies to maintain the appearance of consistency in its China policy. Countries closely involved in economic exchanges with China also recognize the potential national security risks associated with cooperating with China. However, their positions may be influenced by multiple factors, hence they tend to avoid discussing national security risks in public to minimize friction with China.
Sun Guoxiang noted that amid intensified economic competition between the US and China, some European countries hope to maintain balance between the so-called two powerhouses and avoid being overly embroiled in bilateral confrontations.
Additionally, incidents of Chinese-manufactured electric vehicles catching fire have been frequent. According to statistics from the Chinese emergency management department, the self-ignition rate of new energy vehicles in China surged by 32% in the first quarter of last year, with an average of eight new energy vehicles catching fire daily.
Some netizens jokingly remarked that the EU may not need to impose tariffs; if Europeans start buying Chinese-made electric vehicles, it would only take a couple of years for the entire European market to resist them voluntarily due to quality issues.