Amidst the crossfire of the European Union’s upcoming vote on imposing tariffs on China’s electric vehicle (EV) makers lies a brewing storm. The EU’s intent to shield its own automobile industry from the inundation of competitively priced Chinese EVs sounds the alarm bells for a potential trade war grenade that could detonate in unforeseen ways.
China’s lion’s share of 54% in EV imports to the EU, as reported in 2023, has triggered the EU’s protective instincts. However, a protectionist stand-off with China could birth catastrophic ramifications, jeopardizing EU’s export crusaders, EV ambitions, and the delicate equilibrium of raw material supply lines.
Back in July, the European Commission threw down the gauntlet by slapping provisional tariffs on China’s EVs, sparking tensions despite Beijing’s foreboding warnings of retaliation. Beijing vehemently denies charges of unfair EV company subsidies, attributing its industry supremacy to efficient manufacturing practices.
Source: JATO Dynamics, BNEF, ING Research
The Impasse in Europe-China EV Negotiations
With both camps entrenched in their trade ideologies, the EU and China are at a deadlock in addressing their EV trade disparities.
Trade heavyweights – EU’s Commissioner for Trade, Valdis Dombrovskis, and China’s Minister of Commerce, Wang Wentao – stumbled upon impasse in their futile discussions in September. Dombrovskis called for intensified efforts to unearth a solution palatable to both sides, albeit struggling to bridge the chasm.
Post the October vote, the EC resolved to persist with negotiating with China, a reconciliatory gesture reflecting hopes for a consensus despite wavering member unity on imposing tariffs for the next five years.
Auto Manufacturers Rally Against European Tariffs
The tumultuous waters of impending tariffs elicited sharp resistance from European automotive giants.
Voicing against the imposition of tariffs on Chinese EVs, luminaries from BMW AG and Volkswagen AG forecast a bleak future painted by protectionist doctrines. BMW CEO Oliver Zipse’s strong disapproval captured the essence of a tariff-induced spiral threatening to plunge into isolation from cooperation.
Their fears transcend the rhetoric, with China being a pivotal market hub for BMW, underlining the potential fallout from souring bilateral trade relations.
Former Volkswagen AG CEO Herbert Diess echoed the sentiments, raising the specter of an inflationary surge precipitated by escalating trade tiffs between China and the West.
Source: ITC Trade Map, BNEF, ING Research
Testing the Waters: Provisional European Tariffs on China
The stage was set for a tariff showdown with the EC launching its anti-subsidy investigation directed at China’s EV domain last year.
In a damning indictment, the investigation unravelled China’s web of subsidies benefiting its battery electric vehicle (BEV) value chain, potentiating the economic wounds on EU BEV producers. The highest tariffs landed on Chinese behemoth SAIC Motor at a hefty 36.3%, while BYD and Geely weathered lesser blows at 17.4% and 19.9% respectively.
Seeking middle ground, the EC marginally softened European tariffs toward the twilight of August, factoring in insights and rectifications from EV entities operating in China.
Navigating the European Tariff Odyssey With China
Provoked by the specter of tariffs, China has raised a challenge against the EU’s compliance with World Trade Organization norms.
The looming confrontation portends an upheaval in the global trade order, calling into question the fickle nature of international relations in an era defined by economic nationalism and competitive jousts.
