Tariffs on Chinese electric cars could stop Europe reaching its climate goals

17 July 2024

Europe is hitting back at Chinese imports by imposing tariffs of up to 38.1 per cent on Chinese electric vehicles (EVs). This bold move aims to protect the European markets, but it comes with a catch-it could delay and increase the costs of transitioning to electric mobility, slowing down Europe's path to a greener future and making it more expensive.

One of the aims behind the EU's additional tariffs could be to encourage Chinese carmakers to move their production to Europe. But will this strategy pay off? While manufacturers could establish their own factories within the bloc to avoid these duties, collaborating with local producers would offer cost reductions and fast access to the single market. Nonetheless, it is crucial to consider the operational methods of the Chinese industry and the potential implications this may have on local manufacturers.

Digging into the EV subsidy probe

The Commission's decision comes after nearly a year of investigating alleged unfair state subsidies for Chinese electric vehicles. Notably, the Chinese government has opted to significantly increase its industrial subsidies. Recent investigations reveal that state support has catapulted China into the top spot as the world's largest producer of EVs, their batteries, and nearly all critical components and associated technologies.

To ace the EV game without self-inflicted wounds, the EU needs a top-notch strategy. This means smartly tapping into ties with up-and-coming economies, beefing up security measures, and offering financial perks to tackle tough dependencies.

For Brussels, this move signals China’s intention to flood the European market, which is being interpreted almost as a declaration of a trade war. However, free and open trade of electric cars, including with China, could turn out to be beneficial for Europeans and the EU’s ambitious environmental goals in the long run.

EV manufacturers in China that received substantial subsidies, potentially posing a threat to EU EV producers, but cooperated willingly with the European Commission’s investigation, will see a 21 per cent tariff. Those who did not cooperate will be subjected to a steep 38.1 per cent tariff, effectively forcing them to choose a side. Chinese EV makers therefore have potential loopholes to exploit, such as boosting partnerships with local producers, which is a trend expected to rise.

Winners and Losers

The dynamics have shifted. China is no longer playing catch-up in EV technology; instead, it is Europe that finds itself in the position now. The EU's move to impose tariffs on Chinese EVs is buying automakers some breathing room. However, it could also be seen as an invitation for the Chinese to share their technology.

In the world of internal combustion engine cars, European, and especially German companies, have long dominated the spotlight. But when it comes to battery-powered vehicles, they are striving to catch up with China's lead. Chinese electric vehicles are becoming popular among European consumers as drawn by their affordability and incentives.

Take an example from 2023, France saw its most affordable electric vehicles priced between USD 24,000 and USD 32,000. Meanwhile, in China, more than 50 electric models were available for less than USD 15,000. Disrupting the availability of these budget-friendly low-carbon products will increase the transition's costs and slow down environmental progress, jeopardising the EU's emissions reduction goals. Chinese EVs might just be Europe's ticket to staying on course for its net-zero goals.

The timing is also intriguing. The Commission held off announcing its decision to avoid impacting the European Parliament election campaign, but now it's ready to make its move. With the United States and other countries like Turkey already slapping additional tariffs on Chinese EVs, the pressure is on the EU.

In this context, without new tariffs, China might redirect its exports towards Europe, meaning it would shift its focus to exporting more goods to the European market instead of others. This would be more advantageous given the new tariffs imposed by countries like the US. Such a redirection could lead to increased competition for European EV producers, economic pressure on these manufacturers, trade imbalances, and potential regulatory responses from the EU.

It could be argued that the EU's tariffs are justified by this likelihood, but the EU's approach is different from that of the US. Imposing tariffs in Europe will not necessarily encourage the flow of Chinese EVs towards the US and protect the EU. While US tariffs are mainly preemptive, since Chinese EVs have had limited success so far in penetrating the American market, the EU's tariffs are reactive, responding to a surge in Chinese EV imports.

The trade tug-of-war

Europe’s decision appears to be not unanimous. The tariff sizes hint at France's sway over EU trade policy, overshadowing German influence. French carmakers, unlike their German counterparts, are less reliant on China's market and more inclined to wield tariffs to support local production. France has pushed for higher tariffs to protect its domestic EV industry from the influx of cheaper Chinese vehicles, aiming to boost local manufacturers and safeguard jobs.

France's influence is evident in the hardline stance it has taken during the European Commission's deliberations. Paris lobbied vigorously for the investigation into Chinese EV subsidies, a move announced by Commission President Ursula von der Leyen in her annual address in fall 2023. Despite Beijing's threats to retaliate against French industries such as cognac makers and to target the EU’s agriculture and aviation sectors, two sensitive industries that France is keen to shield, Paris has continued to advocate for significantly higher duties on Chinese EVs.

On the other hand, China stands as a vital market for Germany's car giants, notably Volkswagen, Europe's top auto manufacturer. Western manufacturers produce half of China's imported EVs. As Chinese automakers eye retaliatory tariffs on European cars, a tariff showdown seems imminent. The possible Chinese retaliatory tariffs could deal a heavy blow to German auto players like BMW, Mercedes-Benz, and Volkswagen, all of which have significant production hubs in China.

Europe's EV future

But what's the endgame? Europe desires affordable electric vehicles from China, but not at the expense of its own auto industry. Unfortunately, solving this problem isn't as simple as imposing tariffs.

Will these tariffs thwart China's EV invasion of Europe? It’s unlikely. Even with tariffs factored in, Chinese cars will likely remain more cost-effective than its European counterparts. This spells higher prices for consumers and adds pressure on local manufacturers.

To ace the EV game without self-inflicted wounds, the EU needs a top-notch strategy. This means smartly tapping into ties with up-and-coming economies, beefing up security measures, and offering financial perks to tackle tough dependencies.

Ending Chinese ties overnight isn't feasible anymore, given the limited alternative sources for diverse inputs like raw materials, coupled with high production costs in Europe. The EU needs new, less risky partners. Luckily, Europe's got brand loyalty, solid infrastructure, and a skilled workforce in its corner, tools to battle shrinking price gaps.

The EU's aim for a greener future and support for local manufacturers is clear. However, making affordable EVs pricier with tariffs will not be an effective solution. These new measures risk slowing down progress and hiking costs in our journey to electric mobility. It is crucial to find solutions which do not hinder Europe’s path towards sustainability.

DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform

Author biography

Irakli Machaidze is a Georgian political writer, analytical journalist and fellow with Young Voices Europe. Irakli is currently based in Vienna, Austria, pursuing advanced studies in International Relations. He specialises in EU policy and regional security in Europe. Image credit: AILes/Pixabay.