EU presses forward on China’s electric vehicle tariffs after split vote

Proposed tariffs of up to 45% on Chinese-made electric vehicles will cost carmakers billions of extra dollars to bring cars into the bloc and are expected to be imposed from next month for five years.

Reuters

October 5, 2024, at 1:00 p.m

Last modified: October 5, 2024, 1:01 p.m

BYD EV Dolphin Mini is shown as the Chinese electric vehicle maker announces the launch of a low-cost electric vehicle in Mexico City, Mexico, February 28, 2024. Photo: REUTERS/Toya Sarno Jordan/File Photo

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BYD EV Dolphin Mini is shown as the Chinese electric vehicle maker announces the launch of a low-cost electric vehicle in Mexico City, Mexico, February 28, 2024. Photo: REUTERS/Toya Sarno Jordan/File Photo

The European Union will continue to impose high tariffs on electric vehicles made in China, the EU’s chief executive said on Friday, even after Germany, the bloc’s largest economy, rejected them, revealing a rift over the biggest trade dispute with Beijing in a decade.

Proposed tariffs of up to 45% on Chinese-made electric vehicles will cost carmakers billions of extra dollars to bring cars into the bloc and are expected to be imposed from next month for five years.

The commission, which oversees the bloc’s trade policy, said it would take a stand against what it sees as unfair Chinese subsidies after a year-long anti-subsidy investigation, but it also said on Friday it would continue talks with Beijing.

A possible compromise could be to set minimum selling prices.

In a key vote on Friday, 10 EU members supported the tariffs, five were against and 12 abstained, EU sources said.

Blocking the proposal would require a qualified majority of 15 EU members, representing 65% of the EU population, to oppose it. Reuters reported on Wednesday that the solution was likely to be adopted, with France, Italy and Poland in favor of it.

The region’s largest economy and major carmaker, Germany, voted against the proposal, sources said Friday.

The EU’s executive said it had received the “necessary support” to adopt the tariffs, although it would continue talks with Beijing to find an alternative solution.

Noah Barkin, senior adviser at Rhodium Group, said it was a major victory for the Commission after fierce pressure from Germany and China and strengthened Brussels’ position in the negotiations, although the chances of an agreement were slim.

“The risk is that Beijing will feel the need to respond to the imposed obligations with its own retaliatory measures, which will torpedo the chances of a negotiated solution,” he said.

Friday’s vote reflected divisions in the EU’s trade relationship with China. Some countries want a strong stance against what they see as excessive state subsidies, and are aware that the EU did not impose tariffs on Chinese solar panels a decade ago. China has over 90% share in the EU photovoltaics market.

Other countries want to encourage Chinese investment or fear a tit-for-tat trade war.

Shares of European carmakers Renault and Volkswagen rose on hopes the tariffs would help them compete with Chinese rivals on home turf as global demand falls.

However, there have been growing concerns among some domestic players that the tariffs will prompt Chinese companies to accelerate plans to build production capacity in the region.

In what has already been seen as retaliation, Beijing this year launched its own investigations into imports of EU brandy, dairy and pork products. European cognac and pork producers are concerned.

“The French authorities have abandoned us. We do not understand why our sector is being sacrificed in this way,” said the French cognac association.

The Chinese government has also discussed raising import duties on large-engine gasoline vehicles, which would hit German manufacturers the hardest.

Terrible signal?

China’s Ministry of Commerce expressed strong opposition to the planned EU tariffs, calling them “unfair, inconsistent and unjustified” and violating World Trade Organization rules, although it did not mention any countermeasures. It has already taken up the challenge within the WTO.

BMW chief executive Oliver Zipse described the vote as a “disastrous signal for the European automotive industry.” Geely Holding (GEELY.UL) expressed “deep disappointment” with the Commission’s decision.

Hungarian Prime Minister Viktor Orban said the EU was heading towards an “economic cold war” with China.

However, the French car association PFA said it was good that EU members supported the tariffs, adding that they were in favor of free trade as long as it was fair.

Stellantis said the sector was under pressure from ambitious carbon reduction plans and “China’s global trade offensive.”

For consumers, tariffs could mean higher prices for electric vehicles, undermining the EU’s goal of becoming carbon neutral by 2050.

Campaign group Transport and Environment said the EU should not delay CO2 emissions reduction targets for 2025, which some carmakers want, because it would stagnate electric vehicle production in the EU.

“The EU risks the worst of both worlds if it delays meeting its 2025 CO2 emissions targets while restricting affordable models imported from China,” it said.

HARD ATTITUDE

The EU’s stance towards Beijing has hardened over the past five years. It sees China as a potential partner in some areas, but also a competitor and systemic rival.

The Commission says China’s spare production capacity of three million electric vehicles per year is twice the size of the EU market. Given the 100% tariff rates in the United States and Canada, the most obvious market for these electric vehicles is Europe.

As part of the ongoing negotiations with China, the Commission could re-examine the price undertaking, which includes a minimum import price and usually an upper limit on sales volume.

A good example is Volvo Cars, whose majority owner is Geely. The company hopes to avoid high tariffs on imports of Chinese-made electric vehicles by reaching a pricing agreement.

EU tariffs range from 7.8% for Tesla to 35.3% for SAIC and other companies deemed uncooperative in the EU investigation. These duties are in addition to the standard EU import duty of 10% on cars.

Laurent Ruessmann, a partner at RB Legal who defended the EU industry over solar panels a decade ago, was skeptical about the effectiveness of these measures.

“Even getting these funds was very difficult,” he said. “It’s better than solar panels, but will it be enough to save the industry? I’d be surprised.”