EU seeks to block Chinese electric vehicles without provoking a trade war May 30, 2024

Brussels launched an investigation last year into Chinese subsidies for electric cars, provoking Beijing's ire

By AFP - Agence France Presse

EU seeks to block Chinese electric vehicles without provoking a trade war

The EU faces a delicate balancing act as it prepares to raise taxes on Chinese electric cars to protect European industry while avoiding a US-style confrontation with Beijing that could trigger a trade war.

Europe's automotive sector is the jewel in its industrial crown - behind iconic brands such as Mercedes and Ferrari - but it faces an existential threat with the imminent demise of combustion engines and China's head start in the shift to electric.

When Brussels launched an investigation last year into Chinese subsidies for electric cars, the authorities said they wanted to put the brakes on what they claimed were unfair practices that disadvantaged European carmakers.

Beijing reacted angrily at the time, alleging protectionism.

The EU has until July 4 to order a provisional increase in import tariffs on Chinese electric vehicles - currently at 10% - with the expectation that it can decide in June.

As expectations rise, China has raised the temperature further with its threats of tariffs. Europe's agricultural imports could be in the firing line.

Experts suggest that Brussels could raise tariffs to somewhere between 20 and 30 percent, enough to discourage, but not deter, Chinese exporters, which, according to research firm Rhodium Group, would require tariffs of 40 to 50 percent.

This is a measure calculated by the president of the European Commission, Ursula von der Leyen, who emphasized that the EU was planning “targeted” action after the United States quadrupled its tariffs on Chinese electric cars to 100%.

The standoff over electric vehicles comes against the backdrop of growing trade tensions between Beijing and Western countries, which are investing billions in the energy transition and accusing the Asian giant of unfair competition in everything from wind turbines to solar panels.

But the EU is carefully calibrating its steps.

“I don't think anyone in Brussels wants an all-out trade or technology war,” said Jacob Gunter, senior analyst at the China-focused think tank MERICS.

“But there is a growing recognition that something needs to change in trade and technology relations between the EU and China.”

- Different approaches from the EU and the US

China is the world's largest exporter of cars, and Europe is an important market.

The EU's imports of electric vehicles from China increased from around 57,000 in 2020 to around 437,000 in 2023, according to the US-based Peterson Institute for International Economics.

Their value increased over the same period from $1.6 billion to $11.5 billion, according to the Rhodium Group.

Although the United States seems ready to risk a trade conflict with China, Elvire Fabry, of the Jacques Delors Institute think tank, sees important differences in Europe's strategy.

Washington's measure is “based on a political priority to isolate China and slow down its technological development,” she argued.

“The European approach is... based on facts established by an investigation” and aims to restore fair competition, Fabry said.

- Green transition risk

Crucially, Brussels also needs to balance concerns about Chinese imports with its carbon emission reduction targets.

The EU wants many more Europeans to drive electric cars as it prepares to ban the sale of new fossil fuel cars from 2035.

China has sought to leverage this point.

“These measures will only harm the interests of its consumers and affect the global green transformation and efforts to combat climate change,” said He Yadong, spokesman for China's Ministry of Commerce, this month.

Internally too, the EU's anti-subsidy investigation has fueled divisions between member states: it is driven by Paris and supported by French carmakers, but Germany and Sweden have expressed reservations.

Not all European manufacturers are on board either, with German automakers opposing the investigation.

- 'Politically oriented' - Research into EVs, one of the world's most important research blocks.

The investigation into electric vehicles, one of the bloc's largest to date against China, has provoked Beijing's ire, especially as it came about at Brussels' initiative - rather than being triggered by a formal complaint.

Gunter, from MERICS, said he expected a “fairly incisive response”.

China gave a taste of the retaliatory measures it could take when it launched an anti-dumping investigation in January into brandy imported from the EU.

Beijing seemed to raise the stakes last week, with reports in the state-run tabloid Global Times about possible retaliatory measures, such as the targeting of pork imports.

The China Chamber of Commerce for the EU (CEA) referred to a legal expert quoted in Chinese media as saying that European wine and dairy products could be caught in the crossfire.

The trade group told AFP that the investigation “appears to have been conducted politically, without substantial complaints from European industries that adequately represent the interests of manufacturers”.

The EU will have to decide on any final duties by November.

By Raziye Akkoc

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