The European Union said on Wednesday that it would impose additional tariffs of up to 38 per cent on electric vehicles imported from China into the bloc, in what EU leaders called an effort to
protect the region’s manufacturers from unfair competition.

The move, a month after President Joe Biden quadrupled US tariffs on Chinese electric vehicles to 100 per cent, opens another front in escalating trade tensions with China amid growing fears about a glut of Chinese green tech goods flooding global markets.

The actions by the European Union and the United States also reflect the challenges that traditional automakers in Europe and the United States face from up-and-coming Chinese companies founded with a focus on electric vehicles and much lower cost bases than their rivals in the West.

But unlike US carmakers, several of their European counterparts are deeply entwined in the Chinese market and their cars produced there will also be subject to the higher tariffs. They have criticized the European Union’s move to increase duties from 10 per cent, fearing retaliation from China, as well as an increase in prices across the market and a drop in demand for battery-powered cars.

The increases announced Wednesday, which come on top of the existing 10 per cent duties, are preliminary and will take effect July 4. They range from 17.4 per cent to 38.1 per cent for three of the leading Chinese manufacturers, BYD, Geely and SAIC.

The tariffs were calculated based on the level of cooperation with European officials, who have spent the past few months investigating the level of support from the Chinese government for these companies.

Other automakers producing electric vehicles in China, including European companies with factories or joint ventures there, face a tariff of 21 per cent or 38.1 per cent, the EU said. Those rates also depend on their cooperation with the investigation.

The European Union defended the action, saying in a statement that an investigation started Oct. 4 had found that the electric-vehicle supply chain in China “benefits heavily from unfair subsidies in China, and that the influx of subsidized Chinese imports at artificially low prices therefore presents a threat of clearly foreseeable and imminent injury to EU industry.”

China denounced the tariffs as lacking “factual and legal basis” that amounted to “weaponizing economic and trade issues,” said He Yadong, a spokesperson for the Commerce Ministry.

“This is not in line with the consensus reached by Chinese and European leaders on strengthening cooperation, and will affect the atmosphere of bilateral economic and trade cooperation between China and Europe,” He said.

The European Commission, the EU’s executive branch, opened the investigation to determine whether the Chinese government was effectively subsidizing its production of electric cars and sending them to Europe at prices that undercut European competitors.

The automotive sector provides nearly 13 million jobs across the 27-nation bloc, the world’s second-largest market for electric vehicles after China. Imports of electric cars from China last year reached $11.5 billion, up from $1.6 billion in 2020.

About 37 per cent of all electric vehicles imported to Europe come from China, including cars made by Tesla, BMW and Dacia, owned by Renault. Chinese brands account for 19 per cent of the European market for EVs. Their numbers have been growing steadily, according to a study by Rhodium Group.

Europe is open to engaging with Chinese officials to resolve the dispute, said senior EU communications officials, who insisted that the bloc was not looking to introduce higher tariffs for the sake of it, but was moving to defend its nations’ industry.

Tesla, which produces its Model 3 and Model Y in Shanghai for the European market, petitioned for duties on its cars to be calculated individually, the EU officials said. Other companies seeking an individual review have nine months to submit their petition, although none had done so by the time of the announcement Wednesday.

Ursula von der Leyen, president of the European Commission, said last month that Europe was taking a “tailored approach” to calculating its increase in tariffs from the existing 10 per cent, which would “correspond to the level of damage” caused. Tariffs for the other exporting companies will be based on the weighted average of the duty imposed on the three that were investigated.

Before the announcement, China had warned that it could retaliate by raising tariffs on gas-powered cars imported from Europe, agricultural and aviation goods. China already applies a 15 per cent duty on all electric vehicles imported from Europe.

Those include cars made by BMW and Volkswagen, which not only sell to China but also have large production facilities there.

The German carmakers fear that the tariffs will drive up prices in Europe and set off retaliation from the Chinese, ultimately hurting them in both markets. Chancellor Olaf Scholz of Germany criticized the increased duties last week during a visit to a plant in Rüsselsheim, which is owned by Stellantis’ Opel.

“Isolation and illegal customs barriers — that ultimately just makes everything more expensive, and everyone poorer,” Scholz said. “We do not close our markets to foreign companies, because we do not want that for our companies either.”

Economic experts had warned that increasing tariffs to as high as 20 per cent could disrupt trade routes. The Kiel Institute for the World Economy calculated that such an increase would prevent $3.8 billion worth of electric vehicles from China from entering Europe.

But other experts point out that Chinese manufacturers’ cost advantage over Europe’s legacy automakers in the production of components like electronics modules and battery cells means that Europe would need to impose duties of at least 50 per cent to be effective.

Even if European automakers were able to plug that gap, a drop in the number of Chinese models will drive up the overall price of electric vehicles, given the higher labor and production costs, the institute said.

“It is by no means a foregone conclusion that European car manufacturers will fill the gap,” said Julian Hinz, a trade researcher at the institute. Another threat to European producers, he said, is the reality that Chinese manufacturers already have plans to expand production into Europe.

BYD, the leading Chinese automaker, has set its sights on becoming a top maker of electric vehicles in Europe by 2030. Late last year, it named Hungary as the site where it plans to build its first assembly plant in the EU. The company said it was considering setting up a second factory elsewhere in Europe.

Chery, another Chinese manufacturer, announced last month that it would open a plant near Barcelona, Spain, as part of a joint venture with Spain’s EV Motors.

Other European countries are also eager for Chinese automakers to relocate to their home turf, with the idea they would create jobs and strengthen domestic supply chains.

President Emmanuel Macron of France has made a concerted effort to attract more battery production, including from Chinese companies, to a northern region where factory jobs have been in decline. French Finance Minister Bruno LeMaire has gone even further, declaring that the Chinese auto industry is “very welcome in France.”

With a view to the possibility that the Chinese firms expand in their backyard, many European automakers point out that they are more concerned about increasing their competitiveness than they are about the tariffs.

Volkswagen, which has several production and research sites in China, said it was worried about the tariffs, which the company sees as harmful, especially when demand for electric cars in Europe is dipping.

“The increase in import tariffs in the EU could trigger a fatal dynamic of measures and countermeasures and result in an escalation of trade conflicts,” the company said in a statement Wednesday. “We assume that the negative effects of the decision will outweigh any positive aspects.”

The tariffs are expected to enter into force early next month. Affected companies and the Chinese government will then have several days to weigh in. The commission would then have until November before the final tariffs went into force, for a period of five years.

Written by: Melissa Eddy

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