The European Union officials have announced that starting from Friday, July 5th, temporary tariffs of up to 37.6% will be imposed on electric cars imported from China. This move is part of the ongoing trade dispute between the EU and China, escalating tensions between the two sides.
The purpose of the additional tariffs is to prevent cheap electric cars manufactured in China with the help of state subsidies from flooding the European market. The temporary tariffs come with a four-month window, during which negotiations between the two parties are expected to continue. Beijing has threatened retaliation, but the EU insists that China has no basis for retaliation.
The European Commission has set temporary tariffs ranging from 17.4% to 37.6% on Chinese-made electric vehicles, without retroactive effect. These tariffs are imposed on top of the standard 10% tariff on automotive imports into the EU.
On Thursday, the EU released a 208-page document detailing the tariff rates, which were nearly identical to those announced by the European Commission on June 12. Following a minor calculation error in the initial disclosure by companies, the European Commission made slight adjustments.
The companies affected by the tariffs include BYD and Tesla, which has a factory in Shanghai.
The EU’s decision to impose tariffs comes as Chinese automakers are aggressively expanding into the European market, posing a threat to many top European automakers. The European Commission alleges that Chinese automakers benefit from “unfair subsidies.”
After the EU announced the tariffs last month, Beijing stated it would take “all necessary measures” to safeguard its interests. These measures could include retaliatory tariffs on EU exports to China, such as brandy or pork.
However, EU Trade Commissioner Valdis Dombrovskis stated that there is no basis for China to retaliate, as “what we are doing indeed complies with the rules of the World Trade Organization.”
“Our aim is to ensure… fair competition and a level playing field,” he told Bloomberg in an interview.
The EU’s anti-subsidy investigation still has nearly four months to run. Following the investigation, the European Commission could propose final tariffs, typically lasting for five years, and EU member states would vote on them.
Dombrovskis said, “Clearly, we are in discussions with member states, including before imposing these temporary tariffs, it’s obvious that member states are also interested in protecting their car industry from unfair competition.”
“Negotiations with China are also ongoing, and if there is a mutually beneficial solution, we can find a way to ultimately not impose tariffs,” he said, “but obviously, this solution needs to address the market distortions we currently face… and needs to abide by market principles.”
A spokesperson for the European Commission noted, “It is clear that the EU aims to find a solution.” “Imposing tariffs… is a means to correct the imbalance and unfair competition situation, which is disadvantageous to EU electric vehicle manufacturers compared to manufacturers producing cars in China.”
China’s Ministry of Commerce stated on Thursday that both sides have held several rounds of technical negotiations on the tariff issue.
“We hope the EU will meet China halfway, show sincerity, and push forward the negotiation process,” said Ministry of Commerce spokesperson, He Yadong.
For the EU, any solution must be based on World Trade Organization rules and address potential harmful subsidy findings from the investigation. Beijing has reportedly been attempting to shift the investigation into negotiations and trying to divide EU member states through bilateral pressure. Some countries, including Germany, have been pushing for compromise through negotiation.
Executives in the European auto industry are concerned that the tariff measures could impact their competitiveness in China. Last year, one-third of German automakers’ sales came from China.
The EU stated on Thursday that BYD would face a 17.4% tariff, Geely a 19.9% tariff, and SAIC a 37.6% tariff. Companies considered to have cooperated with the anti-subsidy investigation, such as Western automakers Tesla and BMW, would face a 20.8% tariff, while those that did not cooperate would be subject to a 37.6% tariff.
Chinese electric car manufacturers will have to decide whether to absorb the tariffs or increase prices to offset the billions of dollars in new costs for exporting to Europe.
Tu Le, founder of Sino Auto Insights, told Reuters, “With domestic pricing wars impacting profitability, Chinese automakers are eager to expand sales outside of China.”
Opponents of the tariffs argue that the increased cost of purchasing electric cars for European consumers could undermine the EU’s goal of achieving carbon neutrality by 2050.
Nio from China and MG from SAIC Group, both electric car brands, stated on Thursday they may raise prices in the European market later this year. Tesla announced last month that it plans to increase prices for its Model 3.
A spokesperson for XPeng Motors said on Thursday that customers waiting for car deliveries or placing new orders before the tariffs take effect would be “immune to any price increases.” The company did not comment on whether they would ultimately raise prices due to the tariffs.
On Thursday, Volvo Cars, owned by Geely Group, saw its stock price drop 8.9% in Stockholm. The company plans to move production of its best-selling all-electric model, the XC30 SUV, from China to Belgium next year, but is currently affected by the new tariffs.
Despite higher labor and manufacturing costs in Europe, the prospect of tariffs may also incentivize Chinese automakers to invest in building plants in Europe. XPeng Motors became the latest electric car manufacturer to consider setting up manufacturing plants in Europe to avoid tariffs on Thursday.
The European Commission estimates that the market share of Chinese brand electric vehicles in the EU has risen from less than 1% in 2019 to 8%, and could reach 15% by 2025. The European Commission states that Chinese brand cars are typically priced 20% lower than those manufactured in the EU.
European policymakers are hoping to avoid a repeat of the solar panel crisis from a decade ago when the limited action taken by the EU to curb Chinese imports led to many European manufacturers going out of business. Last October, the EU initiated an anti-subsidy investigation into Chinese electric cars.
During the temporary tariff phase, the European Commission has full authority to impose tariffs, but it does consult with EU member states and consider their positions.
In the coming weeks, the EU will present the issue to EU member states in the form of a consultative vote, marking the first official test of support for the European Commission’s case and the first of its kind in such a trade case.
Member states must submit their positions by July 15.
Following the investigation, the European Commission can propose final tariffs, usually lasting five years. In the case of electric cars, the deadline is November 3.
Chinese and electric car manufacturers, among other stakeholders, must provide comments on the investigation results by July 18. They may also request a hearing.
The European Commission has visited over a hundred car manufacturers’ factories in China and Europe and completed most of the investigation.
The final report typically confirms the findings of the interim investigation and may be adjusted based on feedback received.
(This article references reports from Reuters)