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EU Tariffs on Chinese Electric Cars: A Brewing Trade Dispute – Part 1

The European Union took a significant step on Thursday, July 5th, toward collecting new tariffs on Chinese electric cars, signaling the intensification of a trade dispute. Automakers have been instructed to obtain guarantees from banks to ensure they can pay the impending taxes, which are set to be finalized in October.

Background on Tariffs

This move was anticipated. On June 12th, the EU announced plans to impose additional tariffs ranging from 17% to 38% on electric vehicles imported from China. The decision followed an investigation by the European Union, which concluded that Chinese electric car manufacturers benefited from unfair government subsidies.

China’s Response

The Chinese government has consistently denied providing such subsidies, attributing low prices of Chinese-made electric cars to vigorous competition and innovation. Talks between the EU and China began on June 22nd to resolve the dispute. Valdis Dombrovskis, the EU trade commissioner, emphasized ongoing intensive engagements with China to reach a mutually acceptable solution.

Provisional Tariffs and Guarantees

The imposition of provisional tariffs requires automakers to provide financial guarantees of eventual payment for vehicles arriving in the EU starting Friday, July 5th, continuing through October. These tariffs vary significantly by automaker based on the EU’s assessment of each Chinese manufacturer’s subsidies. For instance, SAIC Motor faces a 37.6% tariff due to minimal disclosure about its subsidies, while BYD and Geely face tariffs of 17.4% and 19.9%, respectively.

Impact on Tesla and Other Automakers

Tariffs for American electric vehicle company Tesla, which produces cars in Shanghai for the European market but is ramping up production in Germany, will be calculated individually and could be imposed in the fall. Automakers are now scrambling to guarantee their ability to make payments, as the bloc must still determine if Chinese car subsidies have significantly harmed Europe’s car market.

Global Reactions and Additional Tariffs

Globally, there are growing concerns that China is trying to export its way out of economic difficulties, particularly following a housing market crash that has reduced domestic consumer spending. In response, several countries have already increased tariffs on Chinese electric vehicles. In May, President Biden raised U.S. additional tariffs on Chinese electric vehicles to 100%. Last month, Turkey imposed 40% additional tariffs on gasoline-powered and hybrid cars from China, adding to previous tariffs on electric cars. Recently, Canada began a trade investigation that could lead to similar tariffs.