EU Slaps High Tariffs on Chinese EVs Sparking Trade Tensions

The European Commission has imposed up to 38.1% additional duties on imported Chinese electric cars, setting the stage for potential trade retaliation from Beijing. This move aims to combat excessive subsidies but risks harming EU-China economic cooperation. Western automakers like Tesla and BMW are also affected.

The European Commission told automakers on Wednesday it would impose extra duties of up to 38.1% on imported Chinese electric cars from July, risking retaliation from Beijing which called the move protectionist. Less than a month after Washington announced plans to quadruple duties for Chinese EVs to 100%, Brussels said it would set additional tariffs ranging from 17.4% for BYD to 38.1% for SAIC, on top of the standard 10% car duty. It said this was to combat excessive subsidies.

That equates to billions of euros of extra costs for the carmakers at a time when they are struggling with slowing demand and falling prices at home, according to Reuters calculations based on 2023 EU trade data. European automakers, meanwhile, are being challenged by an influx of lower-cost EVs from Chinese rivals. The Commission estimates Chinese brands' share of the EU market has risen to 8% from below 1% in 2019 and could reach 15% in 2025. It says prices are typically 20% below those of EU-made models.

Andrew Kenningham, chief Europe economist at Capital Economics, said the EU decision marked a big change for its trade policy because, although it used trade defences against China often, it had not done so for such an important industry. European policymakers are keen to avoid a repeat of what happened with solar panels a decade ago when the EU took only limited action to curb Chinese imports and many European manufacturers collapsed. The EU launched an anti-subsidy investigation into Chineses EVs in October.

Shares in some of Europe's biggest carmakers which make a big portion of their sales in China, fell on fears of Chinese retaliation. Some like BMW will also now incur duties on their EVs made in China and sold in Europe. Chinese foreign ministry spokesperson Lin Jian said the EU's investigation was a "typical case of protectionism" and tariffs would damage China-EU economic cooperation and the stability of the global automobile production and supply chains.

Beijing, he said, would take all necessary measures to "firmly safeguard" its legitimate rights and interests. The Chinese Passenger Car Association seemed less concerned.

"The EU's provisional tariffs come basically within our expectations, averaging around 20%, which won't have much of an impact on the majority of Chinese firms," CPCA Secretary General Cui Dongshu said. "Those exporting China-made EVs that include Tesla, Geely and BYD still have huge potential for development in Europe in the future," Cui said.

Chinese EV makers and suppliers are also starting to invest in European production, which would avoid tariffs. CHINESE RETALIATION?

China's commerce ministry said it would take all necessary measures to safeguard the legitimate rights of Chinese companies. Beijing has already launched an anti-dumping investigation into mostly French-made imports of brandy. It also passed a law in April to strengthen its ability to hit back should the United States or EU impose tariffs on exports of the world's No. 2 economy.

The EU provisional duties are set to apply by July 4, with the investigation set to continue until Nov. 2, when definitive duties, typically for five years, could be imposed. The Commission said it would apply an additional 21% for companies deemed to have cooperated with the investigation and 38.1% for those it said had not. The indicative tariffs are above expectations of analysts of between 10% and 25%.

Western automakers like Tesla and BMW that export cars from China to Europe were considered cooperating companies. Tesla, currently the largest exporter of cars to Europe from China, has also requested to have a separate company-specific rate set.

The Commission has still to determine whether to apply tariffs retroactively for three months, an official said. Brussels said it had contacted Chinese authorities to discuss these findings and explore possible ways for resolving the issues identified.

BYD declined to comment. SAIC and Geely, the two other companies investigated by the Commission, and Tesla did not immediately respond to requests for comment. Europe's largest carmaker Volkswagen warned that the negative effects of tariffs would outweigh any potential benefits especially for the German automotive industry.

Mercedes-Benz said Germany, as an exporting nation, did not need increased barriers to trade. BMW said the planned tariffs were "the wrong way to go". China accounted for around 30% of sales for the German carmakers in the first quarter.

Some economists said the immediate effect of the additional duties would be very small in economic terms because the EU imported around 440,000 EVs from China in the 12 months ending in April worth 9 billion euros ($9.7 billion) or around 4% of household expenditure on vehicles. The Kiel Institute for the World Economy has forecast that a 20% tariff, around the average extra to be imposed by the EU, would reduce Chinese EV imports by 25%, largely offset by higher production in Europe, although European carmakers would not necessarily fill the gap.

Will Roberts, head of automotive research at RHO Motion, said Chinese manufacturers should be able to absorb some of the tariff levels into profit margins. "The true test from today's announcement will be whether Beijing will retaliate in kind, or come to an amicable solution," he said.

Italy welcomed the EU decision while French car lobby group PFA said the Commission needed to defend European interests against anti-competitive practices. ($1 = 0.9296 euros)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)