EU plans punitive tariffs of up to 30 per cent on electric cars from China
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 Politico, among others. After President Biden raised the US import tariff from 25 to 100 per cent and thus – intentionally or not – fulfilled one of Donald Trump’s demands, the EU is under pressure to act. Experts report that the existing tariff could rise from the current ten per cent to 25 to 30 per cent 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 had already given a harsh speech in September. According to von der Leyen, there is a threat of a flood of state-subsidised electric cars and thus an artificial distortion of the market to the disadvantage of domestic manufacturers.
An anti-subsidy investigation was subsequently initiated. Its deadline is on 4 July. It is likely that provisional measures will be announced before then.
Insufficient cooperation by BYD, SAIC and Geely
In April, the EU Commission complained that BYD, SAIC and Geely, i.e. the particularly large players, had not sufficiently answered several questions about transparency regarding subsidies or supply chains. The European elections on 9 June are also a factor in the publication of new customs ideas: There are parties that hope to gain a political advantage from such a move.
As mentioned, the import duty into the EU is currently ten per cent. Transport costs are added to this. In the other direction, the duty varies between 15 and 20 per cent. However, only a few cars go this route, and most of them come from the luxury segment, such as Mercedes or Porsche, 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 background discussions with relevant Chinese car manufacturers in February, electrive learnt that they were preparing for an increase in import duties. It is possible that such expectations have already been priced in. The figure of 25 to 30 per cent is now being heard from Brussels.
Tie at 25 to 30 per cent import duty
“25 to 30 per cent import duty is plausible,” said automotive analyst Matthias Schmidt. The reason: “The bank UBS analysed Chinese electric cars in December and found a 30 per cent cost advantage,” explained Schmidt. With this order of magnitude, the EU would merely be levelling the playing field instead of staging a punitive action. Competition would be restored and unfair practices would be compensated for.
However, the European nation-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 the interests of France and Germany are different. 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. The fear that Chinese competitors will be able to score points here is justified.
Germany doesn’t want a trade war
The situation is different for Germany. In terms of trade and production, Germany has been linked to China for longer and more closely than France; interdependence is higher. An offensive trade war is a horror scenario for many German companies, as reported in April.
Dirk Jandura, President of the German Wholesale, Foreign Trade and Services Association (BGA), has clearly criticised the discussion about increasing tariffs. “We would be cutting our own flesh,” Jandura told Redaktionsnetzwerk Deutschland 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 as well as the companies.
Nevertheless, there is to be a compromise line between the French and German ideas, and in this respect, a mild increase to 25 to 30 per cent import duty would make sense. By way of comparison: for bicycles, an additional 19 per cent VAT and an anti-dumping duty of 48.4 per cent are currently added to the import duty of 14 per cent. For e-bikes, the figure is as high as 62.1 per cent.
Produce where it is sold
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 in the USA are intended to reduce strategic dependence on other countries. At the same time, and this is the crux of the matter, the car industry is to be forced by law to produce electric cars where they are sold.
A desirable outcome of a tariff increase from ten to 25 or 30 per cent is therefore not the collapse of trade between China and Europe. It is the opposite, the installation of production capacities everywhere. Some companies have already arrived: CATL, for example, the world’s largest battery manufacturer, has a plant in Thuringia. Volvo will soon be building the EX30 in Ghent, Belgium. And BYD is building a factory in Hungary, where BMW’s New Class will also soon be completed.
It remains to be seen how the Chinese government will react to the increase in EU import tariffs. The increase to 100 per cent in the USA was 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.
