The European Union announced on Wednesday that it will impose additional tariffs of up to 38 percent on electric cars manufactured in China. This move is intended to create a fairer competitive environment for European automakers.
These tariffs, which were widely anticipated, will be in addition to existing 10 percent duties. There is some disagreement over the extent of their impact. While some European automakers believe it could trigger a trade war, others argue that it will not deter China’s dominance in the industry.
Experts suggest that instead of imposing tariffs, the EU should focus on providing incentives to make low-emission vehicles more appealing to consumers in order to achieve its goal of phasing out new internal combustion engine vehicles by 2035.
What does this mean for consumers?
Industry experts predict that the increased tariffs on Chinese electric vehicles will primarily impact consumers by raising the prices of the most affordable electric cars on the market.
According to an investigation conducted by the European Union, the entire supply chain of Chinese electric cars benefits from government subsidies, allowing manufacturers to significantly lower their production costs. This gives Chinese producers an unfair advantage over their European counterparts, as revealed by the EU investigation.
For example, BYD’s Dolphin model is sold in Europe for around 32,400 euros, while a Tesla Model Y costs nearly €40,000 and a Volkswagen ID.4 is priced at €37,000.
Restricting E.V. exports to EU nations could lead more Chinese automakers to move assembly to European countries like Hungary or Spain, where labor and parts costs are higher, potentially resulting in increased prices for consumers.
How will this affect European automakers?
Many European car manufacturers rely heavily on the Chinese market for both exports and domestic production. They fear that retaliation from Beijing could harm their business, given China’s status as the world’s largest automobile market.
BMW’s CEO, Oliver Zipse, criticized the EU Commission’s decision to impose additional import duties, stating that it is detrimental to European companies and interests.
German manufacturers such as BMW, Mercedes-Benz, and Volkswagen not only sell to China but also have substantial production and research operations in the country. They are concerned that any backlash from Beijing could impact their operations.
While some remain open to collaborations with Chinese companies, others are exploring ways to navigate the tariffs. For example, Stellantis announced plans to sell models from its joint venture with Chinese automaker Leapmotor in Europe as a means to circumvent the tariffs.
Was the E.U. just following the United States?
In a similar vein, the Biden administration recently declared new tariffs of 100 percent on Chinese electric vehicles to protect the American auto industry from Chinese competition. These measures are aimed at curbing the entry of Chinese-made electric vehicles into the U.S. market.
Analysts believe that the 100 percent tariff level set by the U.S. will effectively block Chinese electric vehicle imports. Wendy Cutler, a former U.S. trade official, described it as a prohibitive tariff that would halt trade between the two countries.
The EU initiated an investigation into Chinese E.V. subsidies in response to what it deemed as unfair competition, particularly from China’s leading electric car manufacturers, BYD, Geely, and SAIC.
Is it a setback for climate policy?
Critics argue that tariffs like these could hinder efforts to combat climate change by making electric vehicles more expensive and slowing the transition away from fossil fuels. They suggest that Western countries should focus on promoting affordable electric vehicles to meet emission reduction goals.
ManMohan Sodhi, a supply chain management professor, warned that protectionist measures could lead to higher car prices for consumers and delay the achievement of emission targets.
How did the E.U. get here?
The EU is keen to avoid a scenario similar to the one in the late 2000s when China’s investments in solar technology caused European and American companies to go out of business. This led to punitive tariffs on Chinese solar panels, triggering retaliatory measures from China.
Germany’s solar industry still struggles due to the influx of cheap Chinese solar panels. The EU’s past experiences with China’s strategic investments have influenced its current approach to Chinese electric vehicles.
Even before the announcement of tariffs from Brussels, demand for Chinese E.V.s in Europe had started to decline as countries like Germany and France reduced subsidies for electric vehicles.
Great Wall Motors recently closed its Munich headquarters due to the challenging European electric vehicle market. Despite this, BYD remains committed to Europe and is expanding its presence in the region by building a factory in Hungary and considering a second one.
Ana Swanson contributed reporting from Washington.
