As the European Union moves toward finalizing new tariffs on Chinese electric vehicles, tensions between China and the EU are escalating. The Chinese government has threatened retaliation, adding another layer of complexity to the already strained trade relations.
China’s Threats and Retaliatory Measures
On June 17th, China’s Ministry of Commerce announced an investigation into whether pork from the European Union is being dumped in China at unfairly low prices. This case could lead to tariffs on various pork products, from chops to pickled pig intestines. Additionally, in January, China began a trade case against imports of Cognac and other European wine-based spirits, primarily from France, which has been an early supporter of tariffs on Chinese electric cars. The Chinese car industry has suggested imposing tariffs on large gasoline-powered cars imported from the EU if the bloc enforces tariffs on electric cars.
Basic and Additional Tariffs
China currently has a 40% sales tax on large gasoline engines, mostly imported from North America and Europe, and a basic tariff of 15% on imported cars. The EU imposes a 10% basic tariff, while the U.S. has a 2.5% tariff. The new tariffs being drafted or imposed will be in addition to these basic tariffs.
Historical Context and Current Challenges
China is revisiting its playbook from the last major trade dispute with the EU in 2013 over low-priced solar panels. Back then, Beijing managed to persuade Germany to lead a coalition blocking the tariffs. However, it may be more challenging to prevent the electric vehicle tariffs, as Europe’s solar industry suffered greatly after the tariffs were rescinded. Few in Europe want the electric car production to meet a similar fate.
EU’s Internal Processes and Industry Reactions
The EU has tightened rules for overturning tariffs, requiring China to win over a majority of member countries in a final vote in October, representing at least 65% of the bloc’s population. A preliminary vote on provisional tariffs will be held in two weeks, but it is not binding on the European Commission.
Chinese Automakers’ Strategies
In response to the tariffs, Chinese automakers are starting to build factories in Europe to meet demand and avoid trade restrictions. This strategy mirrors the approach Japanese automakers took in the 1980s to bypass U.S. trade restrictions. However, China has a surplus of car factories, capable of producing twice as many cars as are sold in the domestic market.
Division Within the European Auto Industry
The trade case has caused a rift in Europe’s car industry. German carmakers, facing declining sales in China as local automakers gain market share, have opposed the tariffs. They increasingly rely on exporting from their Chinese factories to Europe. On the other hand, European auto parts manufacturers generally support the tariffs, as major automakers like Volkswagen are assembling cars using parts made by Chinese companies.
The ongoing trade dispute between the EU and China over electric vehicle tariffs is a complex issue with significant implications for the global automotive industry. The outcome of this conflict will likely shape the future of trade relations and manufacturing strategies for years to come.