EU definitely plans to raise import duty for Chinese cars

As the US government has now opted to quadruple trade tariffs on electric vehicles from China, Europe is also considering a (much more modest) increase. However, whether any of the trade war’s efforts will benefit customers remains to be seen.

Apparently, the European Union will impose punitive tariffs on electric cars made in China before the summer break. Valdis Dombrovskis, the Brussels Commissioner for Trade, has indicated this to news agency Politico, among others.

After President Biden raised the US import tariff from 25% to 100%, the EU was pressured to act. Experts report that the existing tariff could rise from the current 10% to 25 or 30% in the future. This would affect not only brands such as MG or BYD but also other electric cars manufactured in China, such as the Tesla Model 3, the BMW iX3, and the Dacia Spring.

EU Commission President Ursula von der Leyen already gave a harsh speech on the subject in September. According to von der Leyen, there is a threat of a flood of state-subsidized electric cars, which would artificially distort the market to the disadvantage of domestic manufacturers.

Subsequently, an anti-subsidy investigation was initiated. Its deadline is 4 July, but provisional measures will likely be announced before then.

No sufficient answers

In April, the EU Commission complained that Chinese manufacturers like BYD, SAIC, and Geely, i.e., the particularly large players, had not sufficiently answered several questions about transparency regarding subsidies or supply chains.

As mentioned, the import duty into the EU is currently 10%. Transport costs are added to this. In the other direction, the duty varies between 15 and 20%. However, only a few cars go this route, and most of them come from the (German) luxury segment, where money plays a subordinate role. Most vehicles from German and other European manufacturers that are sold in China also roll off the production line in Shanghai, Wuhan, and Hefei.

In February, the specialized website Electrive learned from background discussions with relevant Chinese car manufacturers that they were preparing for an increase in import duties. It is possible that such expectations have already been priced in. Brussels is now hearing the figure of 25 to 30%.

“25 to 30% import duty is plausible,” says automotive analyst Matthias Schmidt. “The bank UBS analyzed Chinese electric cars in December and found a 30% cost advantage,” explains Schmidt. “With this order of magnitude, the EU would merely level the playing field instead of staging a punitive action. Competition would be restored, and unfair practices would be compensated for.”

EU member states disagree

However, the European member states are by no means in agreement. France was and is the driving force behind the EU anti-subsidy investigation. Germany, on the other hand, has spoken out against new tariffs, both on the sides of industry and in politics.

The simple reason is that France and Germany have different interests. Renault and Stellantis sell many electric cars in the B and C segments. In these price-sensitive regions, a difference of just a few euros can make or break a purchase decision. Therefore, the fear that Chinese competitors will be able to score points here is justified.

The situation is different for Germany. It produces more expensive cars, and its trade and production have been linked to China for longer and more closely than France’s; interdependence is higher. An offensive trade war is a horror scenario for many German companies.

Dirk Jandura, President of the German Wholesale, Foreign Trade and Services Association (BGA), has clearly criticized the discussion about increasing tariffs. “We would be cutting our own flesh,” Jandura said on Tuesday because there would not be “a single car in the EU without parts from China.” The losers of protectionism would ultimately be the consumers and the companies.

Nevertheless, there must be a compromise between the French and German ideas, and in this respect, a mild increase to 25% to 30% import duty would make sense.

Produce locally

The political goal in the three major car markets of China, the USA, and Europe is similar: protectionist measures such as the Inflation Reduction Act (IRA) in the USA are intended to reduce strategic dependence on other countries. At the same time, the car industry is forced to produce electric cars where they are sold.

Therefore, a desirable outcome of a 25% or 30% tariff increase is not the collapse of trade between China and Europe. It is the opposite: the installation of production capacities everywhere. Some Chinese companies have already arrived: CATL, for example, the world’s largest battery manufacturer, and BYD. The latter is building an EV factory in Hungary and is looking for a second location in Europe.

It remains to be seen how the Chinese government will react to the possible increase in EU import tariffs. The increase to 100% in the USA was, of course, not met with amusement, with talk of bullying and serious damage to the bilateral atmosphere.

With regard to the EU, in the best-case scenario those responsible in Beijing leave it at grim comments because they are well aware of the consequences of their own subsidy policy. In the worst-case scenario, there will be a conflict, the loser of which will be the Chinese business of the German industry as a whole. To be continued.

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