The European Union has officially announced a significant increase in tariffs on electric vehicles (EVs) manufactured in China, with rates soaring as high as 45.3 per cent. This decision follows the culmination of an extensive investigation that has not only intensified tensions within Europe but has also triggered robust countermeasures from Beijing.
Following more than a year of scrutiny through an anti-subsidy investigation, the European Commission is set to implement additional tariffs on EVs. These tariffs will start at 7.8 per cent for industry leader Tesla and escalate to 35.3 per cent for China’s SAIC, compounding the EU’s existing standard car import duty of 10 per cent.
The extra tariffs were reportedly formally approved on Tuesday, October 29, and are slated to take effect later this week.
Citing unfair competitive practices, the European Commission has reiterated that these tariffs aim to counteract what they describe as extensive subsidies available to Chinese manufacturers, which include preferential financing, government grants, and below-market prices for essential resources such as land, batteries, and raw materials.
The Commission highlighted China’s surplus EV production capacity, which stands at an astonishing three million units per year—essentially double the size of the current EU market. With the U.S. and Canada applying 100 per cent tariffs on Chinese EVs, Europe remains the primary export destination for these vehicles.
In response to the EU’s tariff decision, Beijing has denounced the measures as protectionist, contending that these actions could strain EU-China relations and disrupt the intricate automotive supply chains that connect both economies.
As a counter-offensive, China has initiated its own investigations into imports from the EU, targeting products such as brandy, dairy, and pork, actions that are widely perceived as retaliatory steps.
Furthermore, the Chinese government is contesting the EU’s provisional tariff measures at the World Trade Organisation (WTO).
European automotive manufacturers are currently grappling with an influx of competitively priced Chinese EVs, which have increasingly gained traction in the market.
According to the European Commission, the market share of Chinese brands in the EU has surged from less than 1 per cent in 2019 to approximately 8 per cent today, with predictions suggesting it could reach 15 per cent by 2025. This rapid ascension in market presence is coupled with pricing that is typically around 20 per cent lower than that of European-made vehicles.
Over recent years, the EU has adopted a more assertive approach towards Beijing, recognizing China as both a potential partner in select sectors and a formidable competitor, even a systemic rival in various respects.
Despite the EU’s overarching decision, member states remain deeply divided on the issue of implementing EV tariffs. Germany, recognized as the EU’s largest economy and a critical automotive production hub, expressed its opposition during a recent vote, where only 10 EU countries endorsed the measures, while five opposed and 12 chose to abstain.
German automakers have voiced strong objections to the EU’s tariff strategy, conveying concerns that this could lead to increased import duties on their larger-engine gasoline vehicles and significantly impact their market positions.
The tariff decision arrives amid ongoing labor unrest, with thousands of industrial workers across Germany, including those from the automotive sector, staging strikes demanding higher wages. Notably, Volkswagen is facing the prospect of halting operations at its domestic facilities for the first time in its 87-year history due to these labor disputes.
Hungarian Prime Minister Viktor Orban has remarked that the EU might be inadvertently steering towards an “economic cold war” with China, signaling deepening concerns over trade relations.
Meanwhile, France’s PFA car association has expressed its endorsement of the tariffs, emphasizing the importance of maintaining free trade principles that are fair for all parties involved, as reported by Reuters.
In the months leading to the eventual implementation of tariffs, the European Commission has partaken in eight rounds of technical discussions with Chinese authorities, actively seeking alternative solutions to avoid tariff imposition. They have indicated a willingness to continue talks even after tariffs are enforced.
Both the EU and China are exploring potential agreements regarding minimum pricing for imported vehicles, and negotiations are set to continue with another round of discussions scheduled for Friday; however, the Commission has acknowledged “significant remaining gaps” that need to be addressed before any consensus is reached.
Data from the China Passenger Car Association (CPCA) reveals that while Chinese EV exports to the EU declined by 7 per cent in the first three quarters of 2024 compared to the previous year, there was a notable spike of over a third in exports during August and September, most likely as manufacturers rushed to export vehicles ahead of the impending tariffs.
**Interview with Dr. Lena Fischer, Trade and Economic Policy Expert**
**Interviewer:** Thank you for joining us today, Dr. Fischer. The European Union has announced an impressive increase in tariffs on Chinese electric vehicles. What were the main factors that led to this decision?
**Dr. Fischer:** Thank you for having me. The primary factor was the conclusion of an extensive anti-subsidy investigation that revealed substantial state support given to Chinese EV manufacturers. The EU is concerned about competitive practices that they consider unfair, such as below-market pricing due to government subsidies and preferential financing. They believe these practices distort the market and threaten European automotive manufacturers.
**Interviewer:** The tariffs are quite significant, reaching up to 45.3 percent. How do you think this will impact the electric vehicle market within the EU?
**Dr. Fischer:** The high tariffs are likely to raise the prices of Chinese EVs significantly, shifting the competitive landscape in favor of European manufacturers. However, it could also lead to increased tensions within Europe. Some member states, particularly Germany, have expressed opposition, fearing that the tariffs could harm their automotive sector more broadly.
**Interviewer:** In response, China has denounced these measures as protectionist. What potential repercussions could this have on EU-China relations?
**Dr. Fischer:** We are witnessing a complex diplomatic landscape. Beijing’s response suggests that they see these tariffs as a direct challenge to their manufacturing sector. This could strain bilateral relations, especially if both sides escalate their measures. The retaliatory investigations into EU imports are a clear indication of how this might unfold, and it’s critical to watch how this affects the interconnected automotive supply chains.
**Interviewer:** The EU has expressed concern about the growing market share of Chinese EV brands in Europe. How do you see that trend evolving, especially with the tariffs in place?
**Dr. Fischer:** The rapid growth of Chinese EV brands in the EU market, jumping from less than 1 percent in 2019 to around 8 percent today, is impressive. With these new tariffs, we might see a slowdown in this growth. However, if Chinese manufacturers are able to adapt and navigate around the tariffs, they may continue to increase their presence, especially since their pricing strategy tends to be aggressive.
**Interviewer:** with the division among EU member states regarding these tariffs, what’s your outlook on the future of European auto policy?
**Dr. Fischer:** The division highlights the challenges the EU faces in balancing protectionism and competition. As environmental policies become more integrated into the automotive sector, this conflict between protecting local industries while fostering innovation could lead to further complications. We might see more negotiations taking place, and possibly reform in how tariffs are implemented or structured going forward.
**Interviewer:** Thank you for your insights, Dr. Fischer. This is a developing story, and we appreciate you sharing your expertise on the topic.
**Dr. Fischer:** My pleasure. Thank you for having me.