China and EU agree on new negotiations about EV import tariffs

During a trip to China, German Economy Minister Robert Habeck made headway in the trade dispute over additional tariffs for EVs in the EU. The Chinese government and the EU want to start intensive negotiations, fuelling hopes of a short-term solution.

Of course, it’s not a coincidence that a German Minister has made the opening, as Germany and its entire car industry are very cool lovers of raising EV import tariffs. They have far too many interests in China and fear that the backlash of raising the tariffs substantially will affect them out of proportion.

‘Candid and constructive’

Both sides have agreed to enter into consultations. According to Olof Gill, spokesperson for the EU Commission, EU Trade Commissioner Valdis Dombrovskis and Chinese Trade Minister Wang Wentao held their first “candid and constructive” call on Saturday. Following this exchange, the Chinese Ministry of Commerce confirmed that these consultations had been agreed.

This was preceded by a three-day trip to China by German Economics Minister and Vice-Chancellor Robert Habeck (Greens), who met with Wang Wentao. Habeck wanted to calm the tensions in the looming trade dispute.

“One has to be very careful now; this is a first step, and many more will be necessary,” Habeck said to reporters in Shanghai after the EU-China talks were announced. “But at least this is a first step that was impossible before. That’s why tonight is a good evening if we want to maintain a level playing field and avoid a tariff war.”

The German minister also spoke to the head of the Chinese planning authority, Zheng Shanjie, in China. The latter subsequently emphasized that China would do everything to prevent the tariffs.

The Secretary of the CPC Leadership Group of the Ministry of Commerce and Chinese Minister Wang Wentao was quoted in his organization’s official statement as saying that China was prepared to take into account the legitimate concerns of both parties to avoid an escalation of trade conflicts.

However, the EU emphasized that “any negotiated outcome to its investigation must be effective in addressing the injurious subsidization.” These subsidies in China have been the official target of the EU’s anti-subsidy investigation from the outset: thanks to the advantages resulting from the vital state subsidies in China, manufacturers can offer their vehicles more cheaply on the global market.

Eliminate distortion of competition

During his trip to China, Habeck emphasized that in the case of the EU, the proposed higher tariffs (up to 38% more than the current 10%) were deliberately special and not punitive. Unlike in the US, where the new 100% import duty on Chinese EVs is designed to keep those carmakers out, the EU only wants to eliminate a distortion of competition with the substantial subsidies in China.

In mid-June, the EU presented the investigation results and announced that if no agreement was reached, it would impose special tariffs on EVs imported from China starting on 4 July. Different tariffs were set depending on the manufacturer (and the level of subsidization found).

According to the EU investigation, BYD (100% private) received the lowest amount of subsidies and will be subject to a special duty of 17.4 % (i.e., 27.4% in total). Politicians in Brussels see the greatest market distortion with (partially state-owned) SAIC: the Shanghai-based car manufacturer is being hit with a special duty of 38.1%, on top of the current 10%.

Manufacturers who did not participate in the investigation will also be subject to a 38.1% special duty. The import duty on Tesla cars made in Shanghai still has to be determined.

CSIS estimate

There is a new figure on the amount of subsidies Beijing has provided to domestic electric car manufacturers: the American Center for Strategic and International Studies (CSIS) estimates in an analysis that the Chinese government has invested at least 230.8 billion dollars in the development of the electric car industry since 2009.

In addition to purchase incentives (which have expired in China), this also considers the sales tax exemption, infrastructure funding, research funding, and government procurement of electric vehicles. The CSIS also registered that the amount of subsidies per car has clearly been diminishing in recent years, but that’s, of course, also because many more EVs were produced.

A table published by the CSIS shows the progression of subsidies over time: between 2018 and 2028, the maximum subsidy per year was 17.4 billion dollars; with lower unit sales at that time, the subsidy amount corresponded to up to 25.4% of the total sales value.

In 2021, the subsidy was already 30.1 billion dollars, and in 2022 and 2023, it was just over 45 billion dollars. As the sales volume has increased enormously simultaneously, the subsidy rate has fallen to 11.4 %. To put it another way, according to the CSIS figures, every EV sold by a Chinese manufacturer in 2018 was subsidized by the state with 13,860 dollars, compared to 4,588 dollars last year (three times less).

Adding water to the wine

If these negotiations are going to succeed, both parties will have to add water to their wine. More and more European manufacturers don’t want a tariff war with China. Of course, the Germans lead the resistance, but lately, other car CEOs like Carlos Tavares (Stellantis) and Luca de Meo (Renault) see no good in seriously increasing tariffs either.

Europe and China seem bound by each other, being the most significant trade partners on both sides. The fact that negotiations have started is a good sign, as is the case for European customers eagerly awaiting more affordable BEVs.

In the eighties, similar alarm messages were uttered in Europe with the venue of the Japanese. Twenty years later, the Koreans stood on Europe’s doorstep. Now, it’s the Chinese. It certainly increases the pressure, but isn’t that what creates innovation?

When the number of imported Chinese cars increases, Chinese manufacturers will also install their production in Europe or the UK. BYD already has a factory for electric buses in Hungary; it wants to build a plant for electric cars nearby. And it is looking for a second venue in Europe. Others will follow.