EU Approves New Tariffs On Chinese Cars Over Germany’s Strong Objection – CleanTechnica

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The European Union voted on October 4 to pave the way for new tariffs of up to 35.3% on electric vehicles imported from China, a move that might set the stage for a protracted trade war with the Asian giant, according to DW. The vote comes after a year-long investigation by the European Commission, which proposed the tariffs to counter what it sees as unfair Chinese subsidies. The tariffs range from 7.8% for foreign companies like Tesla which manufacture vehicles in China, to as high as 35.3% for Chinese companies that reportedly did not cooperate during the investigation. The new tariffs are in addition to the EU’s standard 10% import duty on cars already in effect.

What is interesting is how controversial the new policy was within the EU. Here is a chart from Bloomberg that shows how each country in the EU voted.

The European Commission will now decide whether the import duties come into force at the beginning of November. It said prior to the vote that the tariffs could be lifted if China addresses the EU’s concerns. In a statement following the vote, it said it would continue negotiations “to explore an alternative solution that would have to be fully WTO compatible, adequate in addressing the injurious subsidization established by the Commission’s investigation, monitorable and enforceable.” The European Commission, which oversees trade policy for the bloc, argues that the tariffs are necessary to protect European carmakers from unfair competition, as Chinese automakers benefit from substantial state subsidies. Beijing has opposed the tariffs, calling them “protectionist” and threatening retaliatory measures.

Beijing also expressed an interest in continuing negotiations, saying that tariffs would harm business relations. “China hopes that the EU will recognize that imposing tariffs will not solve any problems, but will only shake the confidence of Chinese companies and deter them from investing in and cooperating with the EU,” the Chinese Ministry of Commerce said in a statement. “China urges the EU to turn its political willingness into action and return to the right track of resolving trade frictions through consultations.” According to Reuters, Spanish Economy Minister Carlos Cuerpo wrote to European Commission Vice President Valdis Dombrovskis asking for negotiations to be kept open beyond the vote, instead of imposing tariffs. The European Commission has indicated a willingness to continue negotiations with China, including considering a minimum import price for electric vehicles. Talks between the EU and China are set to resume on Monday, October 7.

Germany Votes No On Tariffs

Germany strongly opposed the new tariff policy. According to Bloomberg, Europe’s car industry has been disrupted by slowing demand and stiff competition in China, the world’s biggest new car market in the world. Local brands, led by BYD, now dominate electric vehicle sales in China. For years, Volkswagen found the Chinese market highly profitable. Some of those profits helped offset losses in other markets, especially Europe and the US, but now those excess profits have dried up.

As a result, Volkswagen has suggested it may shutter two factories in Germany, something that has never happened before in the company’s long history. The unions that represent Volkswagen workers are furious, but if the company is running in the red, it may have little choice. CleanTechnica reported this week that sales of the Volkswagen ID.4, the only electric car the company manufactures and sells in the US, were down 58 percent in the 3rd quarter, an indication of how dire the situation is for the German company.

A spokesperson for Volkswagen said in a statement Friday that tariffs were the “wrong approach” and wouldn’t improve European competitiveness. “We appeal to the EU Commission and the Chinese government to constructively continue the ongoing negotiations for a political solution. The common goal must be to prevent any countervailing duties and thus a trade conflict.” A loose translation of that statement might read, “We’re hemorrhaging money here in Wolfsburg and this policy will only make the problem worse.”

The large number of abstentions in the EU vote betrays unease in many member states about a possible trade war with China, even as key nations like France have said the bloc needs to defend its own industries more strongly. German Economy Minister Robert Habeck warned earlier that imposing the duties could lead to a tariff war. The German Automotive Industry Association (VDA) called the vote a “further step away from global cooperation.” VDA President Hildegard Müller urged both sides to avoid an escalation, and to “ideally stop the tariffs, to avoid risking a trade war.” She said Germany’s no vote was “‘The right signal from the German government, which — in the interests of the economy, prosperity and growth — has backed the interests of the European and German automotive industry and its employees on such an important issue and voted no today in the EU decision.”

While Brussels has sought a level playing field for European companies, Germany’s automakers are concerned about blowback that could exacerbate challenges they are having already in China — their most important market globally. Mercedes and BMW pressed Berlin to vote against the higher tariffs and urged the EU to negotiate with Beijing. German automakers including Volkswagen, Mercedes, and BMW would be hit hardest in a trade spat, as China accounted for roughly a third of their car sales in 2023.

The Impact Of Tariffs On China

Chinese EV makers will now have to decide whether to absorb the tariffs or raise prices at a time when slowing demand at home is squeezing their profit margins. The prospect of duties has prompted some Chinese automakers to consider investing in factories in Europe, which could help them avoid the tariffs. That is precisely what happened when the US imposed steep tariffs on Japanese-made cars many years ago. Honda and Toyota have a number of US factories today as a result.

The additional tariffs already have slowed the momentum Chinese car companies were enjoying in Europe, with their sales plunging 48 percent in August to an 18 month low. Europe is especially attractive to Chinese automakers because their products sell well there, despite being priced far higher than they are in their home market. The share of Chinese made electric cars sold in the EU climbed from 3% to more than 20% in the past three years.

Daiwa Securities analyst Kevin Lau told Bloomberg the tariffs in Europe will only have a “minor impact” on Chinese manufacturers because the region accounts for just a fraction of their total sales. Europe contributed between 1% to 3% of overall sales for BYD, Geely, and SAIC in the first four months of this year, he estimated.

The Takeaway

Despite all the polite talk and diplomacy, everyone in the world knows China has invested billions and billions into the electric car industry. It has more battery research programs ongoing than the rest of the world combined and more EV research and development programs as well. 50 years ago, people used to complain about “Japan, Inc” because of how closely connected the government and industry were. What China has done makes “Japan, Inc” look like a picnic for school children.

Today, China can build electric cars (and solar panels) for less than half what it costs in other industrialized countries. It’s clear that regardless of any supposed sinister motivations, China is the tail that is waging the dog in the industrialized world. Because of China, workers at Volkswagen may find they have no jobs to go to anymore. The US has erected an even higher tariff wall, which only serves to keep Americans from buying the less expensive electric cars they crave.

Tariffs are clearly a blunt instrument where a scalpel might be better suited to the task at hand. This period of trade turmoil is far from over but it is clear there will be casualties. Who the winners and losers will be has yet be determined.