07/11 – International Economy News Story

In the ongoing trade war between the West and China, a new battlefront has emerged over electric vehicles (EVs). 

In May, the United States imposed a 100% duty on Chinese EVs as part of broader measures against Chinese tech. On July 2, Canada launched a consultation on “unfair Chinese trade practices” in the EV industry. Two days later, the European Union enacted a provisional tariff of 37.6% on Chinese EVs. On July 10, China’s Ministry of Commerce indicated it would investigate whether the EU’s tariffs create barriers to free trade, signaling its intention to retaliate. [The Economist]

Western car manufacturers with significant operations in China fear becoming collateral damage in this conflict. Chinese government agencies have already been directed to remove American-made software and hardware from firms like IBM, Microsoft, and Oracle, citing national security concerns. [The Economist]

Valdis Dombrovskis, the EU’s top trade official, dismissed concerns of retaliation from Beijing after the European Commission imposed tariffs on Chinese EVs ranging from 17.4% to 37.6%. These tariffs, lower than the US’s 100% duty, supplement the existing 10% duty on Chinese EV imports. [The Guardian]

After an eight-month investigation, the European Commission found that companies making electric cars in China benefit from substantial government support, allowing them to undercut EU rivals on price, gain significant market share, and threaten European jobs. [AP News]

European Commission President Ursula von der Leyen expressed concerns about job losses due to these imbalances during her meeting with Chinese President Xi Jinping. China has signaled potential tit-for-tat measures, investigating French cognac and pork imports over subsidies. [The Guardian]

The Chinese commerce ministry accused the West of escalating trade frictions. 

The customs duties will be provisional, meaning they will be totaled up but won’t need to be paid until confirmed by a vote of EU governments before November 2. They were announced on June 12 and will go into effect this Friday. [AP News]

The EU will only collect the duties if it finds that the European auto industry would have suffered material harm without them. This timeline gives the EU and the Chinese government time to negotiate, with talks already held between Valdis Dombrovskis, the EU commissioner for the economy, and Chinese Trade Minister Wang Wentao.

China has rapidly gained a 25% share of the EU market for electric battery-powered cars, up from 3% in 2020. EU officials fear without action, Europe’s EV industry, which employs millions, could be severely harmed. 

Importers of Chinese vehicles will now provide bank guarantees to cover the new duties, pending a final decision on permanent tariffs in the autumn. Provisional tariffs for BYD are set at 17.4%, Geely at 19.9%, and SAIC at 37.6%. Despite opposition from Germany, the tariffs will likely remain, requiring a weighted majority of 15 EU member states to overturn. [The Guardian]

The Biden administration is raising tariffs on Chinese EVs to 100% from the current 25%, effectively blocking nearly all Chinese EV imports. In contrast, Europe’s planned tariffs are aimed at leveling the playing field by approximating the size of the subsidies available to Chinese carmakers, rather than blocking imports entirely. [AP News] 

EU officials argue that while affordable electric cars from abroad are necessary to achieve greenhouse gas reduction goals, they should not come at the cost of fair competition.

The trade war over EVs between the West and China continues to escalate, with significant implications for global trade and the automotive industry. As both sides maneuver for advantage, the impacts on international markets and geopolitical relations remain uncertain. 

Opinion: 

China is now in a peculiar position. On one hand, China must appear firm against accusations of flooding markets with subsidized products. On the other hand, with a slowing economy, China wants to signal openness to foreign investment. China might opt for a measured response, possibly imposing export restrictions on crucial minerals like gallium and germanium, essential for electronics in EVs.

The rapid growth of Chinese EV manufacturers has sparked fears that these Chinese cars will threaten the EU’s ability to produce its own green technology and jeopardize the jobs of 2.5 million workers in the auto industry and 10.3 million more people indirectly dependent on EV production. Flashbacks to the EU’s experience with subsidized Chinese solar panels wiping out European producers has heightened these concerns.

The impact of these duties on car prices remains uncertain. Chinese carmakers might absorb the duties through lower profits instead of raising prices. While consumers might benefit from cheaper Chinese cars in the short term, allowing unfair practices could eventually reduce competition and increase prices. 

Currently, Chinese carmakers often sell their vehicles in Europe at higher prices than in China, focusing on profits over market share. However, there is a fear that Chinese competitors might lower their prices to increase their market share in Europe.

Beijing has sharply criticized the higher duties, calling them “a naked act of protectionism.” [AP News] 

The Chinese Commerce Ministry has noted that several rounds of technical consultations have been held and hopes for a mutually acceptable solution. China could retaliate against European products and luxury imports. 

Over the longer term, Chinese carmakers might try and avoid tariffs by manufacturing cars in Europe, with BYD building a plant in Hungary and Chery planning a joint venture to build cars in Spain’s Catalonia region. [AP News] 

These developments could be intriguing as the commercial tit-for-tat will heavily depend on the outward stances of EU member states towards the PRC and the perceived instability it could cause. 

Currently, it is evident that the bloc is not entirely unified in its suspicions and diplomatic relationship with China. The progression and diversity of opinions on the national and economic security threat posed by China will shape the potential future escalation of the developing trade war between the East Asian power and the broader Western world.

– P.T.