The European Union said on Wednesday it would impose additional tariffs of up to 38 percent on electric cars made in China, a move it said would help level the playing field for automakers in Europe.
The tariffs, which have been expected for months, are on top of existing 10 percent tariffs, but the level of their impact has been questioned. Some European automakers argue they will spark a trade war, but other experts have said they will not stop China’s dominance of the industry.
Instead, they argue that incentives are needed to make low-emission cars more attractive to drivers, if the European Union hopes to meet its goal of banning the sale of new internal combustion engine vehicles by 2035.
What does this mean for consumers?
Industry experts predict that rising tariffs on China’s electric vehicles will hurt consumers more than Chinese automakers by raising the price of the most affordable electric cars on the market.
But according to European Union research, the entire Chinese electric car supply chain enjoys government subsidies that allow automakers to dramatically reduce their production costs. This gives Chinese producers an unfair competitive advantage over their European rivals, the European investigation concluded.
BYD’s Dolphin model, for example, sells in Europe for about 32,400 euros, or about $34,900, compared to almost 40,000 euros for a Tesla Model Y and 37,000 euros for a Volkswagen ID.4.
Clamping down on EV exports to EU countries could lead more automakers in China to move assembly to European countries like Hungary or Spain, where labor and parts costs are higher, leading to which would result in higher costs for consumers.
How will this affect European car manufacturers?
Many European automakers rely heavily on China, the world’s largest auto market, for both exports and production in the domestic market.
“This decision to impose additional import tariffs is the wrong path,” Oliver Zipse, BMW CEO, said Wednesday. “The EU Commission is thus harming European businesses and interests.”
German manufacturers BMW, as well as Mercedes and Volkswagen, not only sell to the Chinese, but also have large production and research and development operations in China. They fear any retaliation from Beijing could hurt their business.
Others remain interested in collaborations with the Chinese. Last month, Stellantis said it would begin selling two models in Europe from its joint venture with Chinese automaker Leapmotor as part of its efforts to circumvent tariffs.
Was the EU simply following the US?
The Biden administration announced last month that it would impose new 100 percent tariffs on Chinese electric vehicles. That move quadrupled the tariffs the United States previously charged on foreign cars, in an effort to protect the American auto industry from Chinese competition.
Some analysts were concerned that tariffs set at a lower level might not be enough to prevent Chinese-made electric vehicles from entering the United States, given the large price difference between cars made in China and the United States.
But Wendy Cutler, vice president of the Asia Society Policy Institute and former U.S. trade official, said the 100 percent level would be high enough to block such trade. “That’s what we call a prohibitive tariff. It really reduces the sharing,” she added.
The European Union launched an investigation into Chinese subsidies for electric vehicles in October, citing what leaders said was unfair competition, especially from China’s three major electric car makers, BYD, Geely and SAIC.
How did the EU get here?
The European Union is eager to avoid falling into a situation similar to the one it suffered in the late 2000s, when Beijing pumped large sums of money into solar energy technology, allowing domestic manufacturers to make multibillion-dollar investments in new factories. and gain market share globally.
The production boom in China caused the price of panels to plummet, forcing dozens of companies in Europe and the United States to go out of business. That led the European Commission to open an anti-dumping investigation that resulted in punitive tariffs on Chinese panels.
But China retaliated and announced its own investigation into exports of European wine and solar panel components, a move that divided the bloc. That allowed China to pit them against each other, which ultimately led the Europeans to back down.
More than a decade later, the German solar industry is still struggling and cheap solar panels from China dominate the market.
What happens next?
Even before Brussels’ announcement on tariffs, demand for Chinese electric vehicles in Europe had begun to slow, as Germany and France cut subsidies for electric cars.
Last month, Great Wall Motors said it would close its Munich headquarters, citing “the increasingly challenging European electric vehicle market, along with numerous uncertainties ahead.”
But BYD, China’s leading electric car maker and sponsor of the 2024 European soccer championship that begins in Germany on Friday, remains focused on Europe. The company is already building a factory in Hungary and is considering opening a second.
Ana Swanson contributed from Washington.
