Are Chinese EVs the latest target in the trade war?
There’s a sense of déjà vu evoked by the ongoing row between the European Union and China over the import of electric vehicles (EVs) and EV components. Shades of the same could be felt in the months before Covid-19 took over all news space, when Europe, following the lead of the United States’, sought to restrict Chinese 5G providers, notably Huawei and ZTE.
There was talk then too of Europe playing proxy to the US in its trade and tech war with China, although fear-mongering over ‘Chinese backdoors’ ultimately dominated over that discourse (before the Coronavirus brushed the conversation aside altogether). The irony with the claims around Chinese 5G products was lost for many given the revelations from just a few years before of how the US was spying on fellow Nato partner Germany. Not to mention the disclosures made by NSA whistleblower Edward Snowden about how pervasive US surveillance programmes really were.
But here we are again, with the EU once again joining the latest salvo in this seemingly US-led ‘trade war’ with China. Last year, Washington and its Western partners sought to limit China’s artificial intelligence research and hinder its chip industry. This year, after TikTok, the target appears to be electric vehicles, of which China is currently the biggest producer.
Earlier this month, the EU announced it would impose additional tariffs of up to 38 per cent on EVs built in China, arguing that the step would help level the playing for European car manufacturers. Expect for months, the new tariffs would apply on top of the existing 10 per cent duties imposed over Chinese EVs.
“As part of its ongoing investigation, the [European] Commission has provisionally concluded that the battery electric vehicles (BEV) value chain in China benefits from unfair subsidisation, which is causing a threat of economic injury to EU BEV producers,” read the statement released by the executive branch of the EU. “In this context, the Commission has pre-disclosed the level of provisional countervailing duties it would impose on imports of battery electric vehicles (‘BEVs') from China.”
According to the statement, the individual duties the EC would apply to the three sampled Chinese producers, namely BYD, Geely and SAIC, would be 17.4 per cent, 20 per cent and 38.1 per cent respectively. These three companies are currently China’s leading EV manufacturers.
Chinese BEV producers that cooperated in the EC investigation but have not been sampled would be subject to the weighted average duty of 21 per cent. All other Chinese BEV producers would be subject to a 38.1 per cent residual duty, the statement added.
All the EC initiated its investigation into Chinese EV subsidies in October last year, its decision to increase duties came weeks after Washington signalled steps to similar effect. Last month, the Biden administration announced it would impose new tariffs of 100 per cent on Chinese EVs, quadrupling the tariffs that the US previously charged for foreign cars. The US move was explicitly intended to prevent Chinese EVs from coming into the country, thereby shielding American manufacturers from Chinese competition.
Quoting Wendy Cutler, the vice president of the Asia Society Policy Institute, on the subject, the New York Times wrote that the 100 per cent level would be high enough to block that trade. “That’s what we call a prohibitive tariff. It really cuts trade off,” Cutler was quoted as saying.
Speaking with CGTN, Harvard Kennedy School Professor Graham Allison, known for coining the term "Thucydides Trap," said political pressures from this year’s presidential election drove President Biden to impose 100 per cent tariffs on Chinese EVs. He argued that the US is unlikely to abandon protectionism in its automotive industry for similar political reasons.
According to the New York Times, the EU decision was prompted by its experience in the late 2000s with Chinese solar panels. On the back of its economic power, the Chinese government heavily subsidised its solar energy sector, empowering the country’s manufacturers to make multibillion-dollar investments in new factories and gain market share globally. The boom caused the price of panels to plummet, forcing dozens of US and European companies out of business.
When the EC opened an anti-dumping investigation that resulted in punitive tariffs on the Chinese panels, China retaliated by announcing its own investigation into exports of European wine and solar panel components, ultimately forcing the Europeans to back down. Over 10 years later, the New York Times wrote Germany’s solar industry is still struggling while cheap solar panels from China dominate the market.
EU’s anxieties may appear simple at first glance, if not for a few key points. For starters, the European and Chinese auto sectors are much more intertwined. European automakers are not only heavily reliant on Chinese components for their own EV products, China is also one of the largest markets for the vehicles they produce and export.
German manufacturers, BMW, as well as Mercedes and Volkswagen also have large production and research and development operations in China, while others remain interested in collaborations with the Chinese. As such, the most vocal opposition to the new tariffs has come from the European auto sector.
“This decision for additional import duties is the wrong way to go,” Oliver Zipse, chief executive of BMW, said the same day the EC statement came out. “Protectionism risks starting a spiral: Tariffs lead to new tariffs, to isolation rather than cooperation.”
“The EU Commission is thus harming European companies and European interests,” he added. Other major German carmakers including Mercedes-Benz and Volkswagen also voiced their support for fair competition and free world trade, reported German media Handelsblatt. Volkswagen rejected the planned tariffs, saying, "The negative effects of this decision outweigh any benefits for the European and especially the German automotive industry."
In an interview with Xinhua, Hildegard Mueller, the president of the German Association of the Automotive Industry, said the EU's high additional tariffs would further deviate from the goals of global cooperation and could quickly have a negative impact in the event of a trade conflict. “The potential fallout originating from these measures may be greater than their potential benefits for the European – as well as the German – automotive industry,” she said.
Even Germany’s transport minister joined the chorus of criticism on the social media platform X. “Vehicles must become cheaper through more competition, open markets and significantly better location conditions in the EU, not through trade wars and market isolation," he posted. The German economy is in ‘troubled waters’ according to country's economy minister. Robert Habeck, in February, said the German government's forecast for economic growth for 2024 had been revised down from 1.3 per cent to 0.2 per cent, implying that that Europe's largest economy had effectively stalled
Sweden's Minister for International Development Cooperation and Foreign Trade Johan Forssell said his government wants to know whether the EC has exhausted other options besides tariffs. "We are generally skeptical of tariffs. Someone has to pay them, and in this case, it will sooner or later be the consumers," the Swedish TT news agency quoted Forssell as saying.
Beyond the European auto industry, the new tariffs will also hinder Europe’s climate commitments and green ambitions. In 2023, the EU adopted a set of Commission proposals to make the EU's climate, energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. The proposals, EC claims, will enable the EU to become the first climate-neutral continent by 2050.
Speaking to CGTN, Benedikt Sobotka, the CEO of Eurasian Resources Group and co-chair of the Global Battery Alliance, said, "There is no way the world will achieve the Paris goals for reducing carbon emissions without the capacity of the Chinese renewable energy industry." He added that China's renewable energy technology is at such an advanced stage that it now holds sway on the industry globally.
"The fact is that we need China to solve global problems, which applies, in particular, to successfully tackling the climate crises," Hildegard Mueller said in her interview with Xinhua.
Last Saturday, officials from China and the EU finally agreed to hold talks over proposed tariffs. The announcement came after a call between EU Commissioner Valdis Dombrovskis and Chinese Commerce Minister Wang Wentao.
"It is hoped that the EU and China will meet each other halfway to push for positive progress in the consultations as soon as possible and reach a solution acceptable to both sides, so as to avoid the adverse impact of escalating trade frictions on China-EU economic and trade relations," a spokesperson for China’s commerce ministry said on Thursday. He added that China-EU cooperation featured complementarity and mutual benefits and "the two sides have broad room for cooperation in green transformation."