08/23 – International Economics Piece

The European Commission announced on Tuesday its plan to implement five-year import duties of up to 36% on Chinese electric vehicles (EVs), unless Beijing can offer an alternative solution to address concerns over state subsidies. 

Tesla EVs produced in China will be subject to a reduced duty of 9%, reflecting lower levels of Chinese subsidies compared to other manufacturers.

Last month, Brussels imposed provisional tariffs on Chinese EVs, in addition to the existing 10% duty, after determining they were unfairly competing with European counterparts. The Commission has now proposed making these tariffs permanent, with the rates open to review by interested parties until the end of August, and final approval expected from EU member states by October.

The proposed tariffs include 17% for BYD (adjusted from 17.4%), 19.3% for Geely (revised from 19.9%), and 36.3% for SAIC (down from 37.6%). Other Chinese producers that cooperate with Brussels will face a tariff of 21.3%, slightly up from 20.8%, while non-cooperative manufacturers would be hit with the maximum 36.3% duty. [Japan Today] 

Tesla, owned by U.S. billionaire Elon Musk, requested its own duty rate, which has been set at 9% after the Commission determined it benefited from fewer Chinese subsidies than domestic manufacturers. [Japan Today] 

China has strongly opposed these tariffs and has filed an appeal with the World Trade Organization, though Brussels believes its measures comply with WTO rules. The EU remains open to alternative solutions that align with WTO standards but emphasizes that it is up to China to propose them.

China has also hit back in response to these EU tariffs by launching a probe into some European dairy imports. China has used anti-dumping investigations into European agricultural products, most recently pork, as a tit-for-tat response in this prospective trade war. 

The provisional duties, in place since July 5, have been provided as bank guarantees but will be released once the final measures are established. This trade dispute is part of broader tensions between China and the EU concerning trade, technology, and national security.

China’s emergence as a leader in the electric vehicle (EV) industry, fueled by significant state investment, has given its manufacturers a competitive edge. In 2023, Chinese EV exports surged by 70%, reaching $34.1 billion, with nearly 40% of these exports going to the European Union, making it the largest recipient of Chinese EVs. [Japan Today] 

 The EU is now facing the challenge of protecting its automotive industry while managing its complex trade relationship with China.

Opinion: 

The next decade is critical for Europe’s automotive industry, which faces the dual challenge of decarbonizing and contending with strong competition from China.

Pedro Pacheco, vice president of automotive research at Gartner, warns that European automakers must launch competitive products to survive. The European Green Deal, initiated by the previous European Commission, aims to make the EU climate-neutral by 2050, with significant focus on reducing vehicle emissions. Initially, climate change was a top priority, but economic concerns are now generating political resistance. Despite this, the push for all-electric vehicles remains strong, though achieving zero emissions is becoming increasingly difficult. 

The European car industry is a major economic force, representing 7% of GDP and employing 13.8 million people. While Europe has long dominated internal combustion engine (ICE) technology, it lags in battery technology, a critical area for the future of electric vehicles (EVs). European carmakers like Volkswagen, Mercedes-Benz, Renault, and Stellantis are struggling to adapt to the shift towards battery-powered vehicles, especially in the face of competition from China, which has become the world’s largest EV market. [Politico]

The EU’s Green Deal includes a law banning the sale of new ICE vehicles by 2035, with milestones to ensure compliance, such as a required 15% emissions reduction by 2025. Failure to meet these targets will result in fines, pushing automakers to sell more EVs. However, EV adoption is slow due to concerns over driving range, infrastructure, and cost. Meanwhile, Chinese automakers, benefiting from lower production costs and advanced technology, are making inroads into the European market.

The EU and U.S. have imposed tariffs on Chinese EVs, but these measures may only slightly slow Chinese competition. Some Chinese companies are even setting up operations in Europe to avoid tariffs. In response, European automakers are diversifying their offerings, including hybrid models, which have seen an increase in market share.

Despite the 2035 ban on new ICE cars, existing ICE vehicles will continue to emit CO2 for years to come. Additionally, political opposition to the ban is growing, with calls for exceptions for synthetic and biofuels, potentially allowing new ICE cars to be sold after 2035. Hydrogen-powered vehicles, although discussed as an alternative, have not gained significant traction due to infrastructure challenges and low adoption rates.

Overall, Europe’s car industry faces a tough road ahead, with significant implications for the region’s economy and political landscape. Pacheco notes that European automakers could have performed better if they had prioritized EVs as much as their Chinese competitors.

– P.T.