EU and China explore price floor deal to replace EV tariffs

Will the EU’s punitive tariffs on Chinese EVs soon end? The European Union and China have opened formal talks on setting minimum prices for Chinese electric vehicles sold in Europe as a potential replacement.

Both sides confirmed the development in negotiations, signaling a possible escape route from the escalating trade dispute that has shaken the countries’ automotive and broader economic relations for almost a year.

EU Trade Commissioner Maroš Šefčovič and Chinese Commerce Minister Wang Wentao agreed to begin negotiations immediately, according to statements released by the European Commission and China’s Ministry of Commerce.

The proposal under discussion would substitute import duties—which currently reach up to 45.3% in the worst cases—with so-called “price undertakings”.” This mechanism is more commonly used for basic commodities; it’s unusual for complex products like cars.

Tariff hammer

China and the EU are rethinking their bilateral trade agreements after US President Donald Trump’s tariff hammer shook the global economy. Trump’s tariff policies created a near-closed US market for Chinese EVs, which pushed Chinese automakers to double down on Europe.

However, this tightening global landscape doesn’t necessarily weaken the EU’s former position. According to Šefčovič any eventual deal would need to match the effectiveness of the current tariffs.

It must still aim to tackle what Brussels sees as unfair competition from Chinese automakers receiving substantial state subsidies. Nonetheless, the move marks a shift in tone, with both sides showing a willingness to de-escalate.

German automakers, among the most vocal critics of the EU’s tariffs, welcomed news of the talks. The VDA, Germany’s auto industry association, reiterated its opposition to trade barriers and called the duties a “mistake.”

It warned that the focus should be on eliminating obstacles rather than creating new ones. German brands have much at stake: They generate roughly a third of their global sales in China and fear backlash if tensions escalate. However, Chinese customers are pulling back from buying Western-made cars and increasingly prefer local brands.

Chinese sales jump

Chinese car makers adapted to the tariff hurdles by accelerating local production or kit assembly and refocusing on plug-in hybrids, which were not subject to the EU’s increased tariffs.

Data from market researcher Dataforce shows that European sales of Chinese-built vehicles jumped 64% in February year-over-year, capturing 4.1% of the market compared to 2.5% the year prior. Sales of plug-in hybrids surged over 300% in the same month. By contrast, fully electric Chinese imports fell slightly, down 3.4% to 11,116 units, even as the overall European BEV market rose 26%.

The EU’s tariff regime, first enacted in October 2023, has been a significant flashpoint in trade relations. Specific duties included a 17% surcharge on EVs from BYD, 18.8% on those from Geely, and 35.3% on SAIC, the parent company of MG — the best-selling Chinese auto brand in Europe. These are in addition to the EU’s standard 10% import duty on passenger vehicles.

Beijing responded with countermeasures, targeting politically sensitive European exports. French cognac producers, including Hennessy and Rémy Martin, were hit particularly hard as China slapped new tariffs on luxury spirits in retaliation.

The result has been a chilling effect on trade flows and mounting pressure from industry stakeholders to compromise. It seems the USA provided that pressure.