On July 4, the European Commission announced that it will impose provisional countervailing duties of between 17.4% and 37.6% on imports of electric vehicles made in China (reduced from the previously announced duties of up to 38.1%), with a maximum duration of 4 months. The Commission provisionally concluded that the battery electric vehicles (BEV) value chain in China benefits from unfair subsidization, which is causing a threat of economic injury to EU BEV producers. It is important to note that the provisional countervailing duties will be added to the existing tariff of 10%. EU’s talks with China over tariffs on the issue are still ongoing, and a final decision is set to be taken on definitive duties through a vote by EU Member States in November.
The provisional countervailing duties imposed will affect certain Chinese BEV producers. Three Chinese companies - BYD, Geely and SAIC - will face additional duties of 17.4%, 19.9%, and 37.6%, respectively. 13 other companies including FAW, BMW Brilliance, Tesla, Changan, Nio, Xpeng, among others, will be subject to a weighted average duty of 21%.
EU Countervailing Duties: Short-Term Protection and Long-Term Effects
EU’s tariff policies may have far-reaching implications for the automobile industry of both China and Europe, as well as the entire economic system. Despite efforts by European carmakers in recent years to transition towards electrification, many are still in an immature stage. China, the world’s largest market and producer of electric vehicles, holds significant advantages in terms of cost-effectiveness, technological innovation, and more. In 2023, China exported 480,000 pure electric passenger cars to the EU, accounting for 45.1% of China’s total electric vehicle exports, according to Customs statistics.
In the short term, the EU tariffs will undoubtedly weaken the competitiveness of Chinese companies in the EU market, providing a period of protection for EU BEV producers. However, the imposition of tariffs may trigger a chain reaction, leading dealers to shift the additional tax burden onto consumers, resulting in an increase in selling prices of EVs. The expected rise in prices is likely to diminish European consumers’ willingness to purchase EVs. In the long run, it may not favor the sustained expansion of the European EV market. Instead, it may bring about the risk of market contraction. Furthermore, some industry insiders believe that countervailing duties would not only affect Chinese manufacturers, but also European companies and their joint ventures in particular. The EU’s move to impose these tariffs infringes upon the principle of free trade, potentially leading to self-inflicted consequences.
A Double-Edged Sword in Environmental Goals
From the perspective of environmental protection and climate change, there is a clear conflict between countervailing duties and the climate goals pursued by the EU. In December 2019, the Commission announced the European Green Deal, aimed at becoming climate-neutral by 2050, as well as a target of 55% less emissions by 2030, in comparison to 1990. As one of the major sources of greenhouse gas emissions in the EU, the transportation sector plays a crucial role in achieving these targets. However, imposing tariffs on China-made EVs may deter European consumers from purchasing electric cars, thereby slowing down the green transition in the transportation sector and affecting the EU’s climate action.
Global Automobile Industry Chain May Undergo Restructuring
In the long run, the EU’s measures may trigger a restructuring of the global automobile industry chain, posing challenges to the stability and efficiency of the supply chain. China’s EV industry chain is well-established, covering the production and research of key components such as batteries, motors, and electronic control systems. These advantages not only support the rapid growth of EVs in China but also provide crucial supply chain support to the global EV market. EU tariffs on Chinese EVs could propel Chinese EV producers into seeking new export markets or strengthening cooperation with other regions, reduce reliance on the EU market, and accelerate the construction of independent supply chains within the EU and by European automakers. However, this process will be lengthy and costly.
In the current era of globalization, trade wars and tariff barriers often lead to a lose-lose situation. If the EU continues to take a tough stance on Chinese EVs, it could provoke further retaliatory trade measures, exacerbating global trade tensions. Furthermore, it could damage the foundation of cooperation between China and the EU in areas such as climate change and technological innovation.
In conclusion, the EU should uphold the spirit of open collaboration and handle trade disputes with a more rational and pragmatic approach, jointly building a fairer, more transparent trade environment with China, and collectively drive the sustainable development of the EV industry and the global economy to ensure mutual interests and global welfare. On the contrary, resorting to tariff barriers will be detrimental to the stability and healthy development of trade relations.
