The EU will notify China this week that it is imposing tariffs on imports of electric vehicles, kicking off a possible summer trade war between Beijing and the EU.
After a long investigation into China’s subsidies for car manufacturing which is expected to conclude that the massive support remains concentrated on the EV industry, a formal pre-disclosure could occur as soon as Wednesday.
Chinese manufacturers have already begun to prepare for the new import duties. However, experts predict that Beijing could retaliate by imposing countermeasures on a wide range of EU products exported to China, from dairy to cognac.
Ursula von der Leyen warned that the world could not absorb China’s excess production after meeting Xi Jingping in Paris. She said the EU “wouldn’t waver” on protecting industries and employment within the EU.
The investigation into anti-subsidies was launched in October last year amid suspicions China was flooding Europe with cheaper EVs due to overcapacity, and that this was dampening domestic consumer demand.
The EU is conducting more than a dozen investigations into Chinese state-aid, including a probe into exports for solar panels, heat pump and wind turbines. According to the energy sector, these exports are below the EU’s price by 50%.
Experts believe Beijing will view the impositions of tariffs in the face of the success of China’s exports due to the electric vehicle sector.
They predict that Xi won’t budge from his national bet to dominate the green technology sector in the world with EVs and solar panels, but will instead see trade as a battlefield where he is able to set the terms.
If the EU investigation, which is expected to conclude on Wednesday that Chinese auto manufacturers have gained a competitive edge, Beijing will be notified in advance of any tariffs, and it will have four week to present evidence to refute the European case.
In November, roughly 13 months after the start of the investigation, any decision to permanently apply tariffs must be supported by the member states.
The tariff schedule, if imposed, would include three tiers. Individual rates for the companies investigated by EU, including the world’s largest EV seller,BYD, an average tariff rate for companies who cooperated but were not fully examined, and a residual tax for those companies not investigated.
Rhodium Group, a consultancy that specializes in China research, expects tariffs of 15%-30%. This will be easy for conglomerates like BYD to absorb, as they launched their entry-level Dolphin hatchbacks in the EU at a price just below €30,000 (roughly £25,000) last summer. It is part of the marketing campaign to be an official partner with Uefa for the Euro 2024 championship.
Rhodium stated that “some China-based manufacturers will still be capable of generating comfortable profit margins for the cars they sell to Europe due to the substantial cost benefits they enjoy.”
The European market would need to be unattractive to Chinese EV exporters if they were to charge tariffs in the range of 40-50% – or even higher if the manufacturer is vertically integrated like BYD.
China has long maintained that it does not subsidise its automotive industry, but even if they did, their exports still help western countries achieve their green goals.
Wang Wentao insisted on the “win-win strategy” of cooperation with the EU during a visit to Spain and Portugal earlier this week. “I hope the European side will give up protectionism and go back to the right path of dialogue, cooperation and collaboration,” Wang said. He called on Spain to ease “anxiety” about a possible costly rift.
He said that the EU’s constant talk of overcapacity isn’t an excess in production capacity, but rather an excess in anxiety. And the so-called distortion of the markets is not a distorsion of the market, but a distorsion of mindsets.
Western governments claim that China can easily modify its strategy, absorb the tariffs, and compete on an equal playing field. However, it cannot be allowed dominate the future clean tech and energy market.
After the Russian invasion of Ukraine, the EU was exposed for its over-reliance on Russian Gas. EU officials are determined to not repeat this mistake in China and have adopted an official “derisk” strategy.
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