In recent months, trade disputes between the European Union and China have escalated. Industry representatives and analysts believe that following the escalation of tariffs on Chinese products by the United States, a full-scale trade war between the EU and China is also likely to happen. As the EU’s investigation into Chinese electric vehicles nears completion, the situation may further intensify.
Currently, the EU has initiated anti-dumping or anti-subsidy investigations into at least 13 Chinese imported goods, including electric vehicles, seamless steel pipes, composite wood flooring, and vanillin, to determine if they are being sold below cost or receiving unfair subsidies from the Chinese authorities.
In retaliation against the EU, Beijing has also accused Europe of dumping products like high-end Cognac into China and hinted at restrictions on luxury cars and pork produced in Europe.
This escalating standoff indicates that a trade war between the EU and China is likely on the horizon.
The United States, China, and Europe are the three largest automotive markets globally. Many analysts believe that following the US’s increased tariffs on Chinese electric vehicles, trade tensions in this sector between Europe and China will worsen.
Earlier this month, the US government raised import tariffs on Chinese electric vehicles by four times to 100%, effectively blocking Chinese electric vehicle manufacturers from entering the US market.
Currently, the number of Chinese electric vehicles purchased by the US is limited. In contrast, Europe is the largest export market for Chinese electric vehicle manufacturers. With the US’s stringent measures, the pressure on the EU to protect relevant industries has increased. If Chinese electric vehicles face difficulties exporting to the US, European carmakers may face increased competition from Chinese products.
Over the past decade, Beijing has injected significant national subsidies into the Chinese electric vehicle industry, leading to overcapacity, as believed by the EU. The EU emphasizes that Beijing should boost domestic consumer demand rather than dump excess production on the global market.
Given the complexity of electric vehicles, the EU’s investigation will involve upstream products in the supply chain, including Chinese government subsidies for battery manufacturing, vehicle design, or steel supply.
Last fall, European Commission President Ursula von der Leyen initiated this investigation. According to the investigation timeline, any provisional tariffs must be notified to market participants by early June.
From June 6th to June 9th, the European elections will take place, meaning that trade issues may become a focal point in the final stages of the campaign.
Last year, the EU had a trade deficit of nearly 300 billion euros with China and Brussels aims to narrow this gap. Data also shows that the EU auto industry directly or indirectly creates nearly 14 million jobs, accounting for 6.1% of the EU workforce. The cheap exports of Chinese electric vehicles pose a direct threat to this industry chain.
In the past three years, Chinese electric vehicle exports have surged by 851%, with most vehicles being sold in the European market. According to Citigroup data, the EU accounted for 36% of Chinese electric vehicle exports last year, exceeding the total of the next five largest markets.
The Peterson Institute for International Economics (PIIE) estimates that European imports of Chinese electric vehicles have rapidly increased in recent years, doubling between 2021 and 2023 to over 430,000 vehicles per year.
At the same time, Chinese imports of European electric vehicles are insignificant, raising concerns in Brussels that the EU market may be flooded with Chinese cars, leading to the collapse of the European auto industry.
Currently, the EU imposes a 10% tariff on imported cars. Analysts at the Rhodium Group estimate that the tariff rate may need to be raised to 50% for fair competition. They added that for China’s largest electric vehicle manufacturer BYD, even higher tariffs may be necessary.
This year, the EU has launched investigation after investigation into Chinese goods. The latest probes involve seamless steel pipes, composite wood flooring, food additives like lysine, and vanillin. While these investigations may not grab headlines like electric vehicles, they indicate the ongoing tensions in EU-China trade relations.
Moreover, Europe is employing various economic tools to counter Chinese competition in sectors such as magnetite, wind turbines, medical equipment, security screening devices, solar power generation equipment, and electric vehicle batteries.
The Chinese government claims that France sparked the electric vehicle investigation by conducting a probe into French Cognac.
In May this year, China announced investigations into the import of polyoxymethylene copolymers from the EU, US, Taiwan, and Japan. These are engineering plastics used in phones, automotive components, and medical devices.
Currently, China is also targeting German luxury cars. The European Chamber of Commerce in China indicated that due to escalating trade tensions between China and the US-Europe, Beijing may impose a 25% tariff on imported cars with engine capacities over 2.5 liters, affecting sports car and SUV manufacturers’ interests.
However, European automotive analyst Matthias Schmidt told POLITICO that although German car brands face impacts on the Chinese market, their high-end models can adjust pricing or reduce profits to withstand such effects.
Jürgen Matthes from the German Economic Research Institute also believes that the share of car exports in EU GDP is decreasing, and the threat of Beijing imposing tariffs on luxury car models will only slightly affect export volumes.
Over the weekend, Chinese state media cited an anonymous industry insider stating that Chinese companies plan to request Beijing to initiate anti-dumping investigations into EU pork products. Analysts suggest this reflects the escalating tensions in EU-China trade relations.
While the EU refrains from explicitly mentioning a trade war and instead opts for “de-risking” to describe its trade conflict with China, some analysts argue that a low-level trade war is already underway between the two sides.
Agatha Kratz, an analyst at the Rhodium Group, told CNN, “As of now, the EU has used all tools available to protect its economy and European jobs from China’s unfair trade practices.”
She believes that the EU and China are engaged in a low-level trade war.
“I would say we are in a very tense period in terms of trade interactions and trade defenses,” she added.
In April this year, Jens Eskelund, chairman of the European Chamber of Commerce in China, also warned that Europe and China may trigger a full-blown trade war. He likened the current trade situation between Europe and China to a “slow-motion train crash.”
Eskelund remarked, “The crash hasn’t happened yet, but we can see that if we continue in today’s direction, it will occur.”
Meanwhile, the US is pressuring the EU and other allies to reduce reliance on Chinese trade and collectively address China’s overcapacity issues.
Last week, US Treasury Secretary Janet Yellen expressed her hopes for Western countries to build a “wall against” state-driven industrial policies by China to protect domestic free markets. This issue was central at the G7 finance ministers’ meeting.
After the meeting, the G7 finance ministers released a 13-page joint statement focusing primarily on China’s overcapacity issues and concerns about China’s non-market policies that may disrupt other countries’ economic resilience.