Europe imposes tariffs on Chinese electric vehicles, for now; here’s what to know

FRANKFURT, Germany (AP) — The European Union is imposing much higher tariffs on electric vehicles (EVs) imported from China. EVs are the latest flashpoint in a broader trade dispute over Chinese government subsidies and Beijing’s growing exports of green technology to the 27-nation bloc.

The higher tariffs will take effect on Friday, pending a final decision in four months. Here are some basic facts about the EU’s planned tariffs:

What did the European Union do?

After an eight-month investigation, the European Commission, the EU’s executive arm, found that companies making electric cars in China benefit from massive government aid, meaning they can undercut their EU competitors, grab huge market share and threaten European jobs.

The EU announced the higher tariffs on June 12 and they will take effect from Friday. The tariffs are provisional, meaning they will be calculated but will not have to be paid until they are confirmed by a vote of EU governments before November 2. The EU will only levy the tariffs if it finds that the European auto industry would have suffered material damage without them.

This gives the EU and the Chinese government time to negotiate. Talks have been held between Valdis Dombrovskis, the EU commissioner for economy and trade, and Wang Wentao, the Chinese trade minister, as well as at the level of technical experts.

Higher tariffs are not an objective in themselves but “a means to correct an imbalance,” Commission spokesman Eric Mamer said Thursday. “We certainly hope to be able to find a solution that will allow us not to have to continue down this path.”

If the tariffs are applied, they would be 17.4% for BYD cars, 19.9% ​​for Geely cars and 37.6% for vehicles exported by China’s state-owned SAIC. Geely has brands including Polestar and Sweden’s Volvo, while SAIC owns Britain’s MG, one of Europe’s best-selling EV brands. Other EV makers in China, including Western companies such as Volkswagen, BMW and Tesla, would be subject to duties of at least 20.8%. The commission said Tesla could get an “individually calculated” rate if tariffs are imposed outright.

Under EU rules, it is possible — though at the moment it seems unlikely — that the higher tariffs could be blocked before the November 2 entry date by a vote of what the EU calls a “qualified majority” of countries. That means at least 15 of the 27 EU member governments representing at least 65% of the bloc’s population.

Why did the commission take action?

Chinese-made electric cars jumped from 3.9% of the EV market in 2020 to 25% in September 2023, the commission said, in part by unfairly selling at lower prices than the EU industry.

The commission found that companies in China achieved this with the help of subsidies along the entire production chain, from cheap land for factories by local governments to below-market supplies of lithium and batteries by state-owned enterprises, tax breaks and lower-interest financing from state-controlled banks.

Rapid market share growth has raised fears that Chinese cars threaten the EU’s ability to produce its own green technology needed to combat climate change, as well as the jobs of 2.5 million workers at risk in the auto industry and 10.3 million more people whose jobs indirectly depend on EV production.

Chinese-subsidised solar panels have wiped out European producers, an experience European governments do not want to see repeated with their car industry.

Unusually, the commission acted on its own, without a complaint from the European auto industry. Industry leaders and Germany — home to BMW, Volkswagen and Mercedes-Benz — have been skeptical of the subsidy investigation. That’s because many of the cars that will be affected by the tariffs are made by European companies and China could retaliate against the auto industry or in other areas.

How do EU tariffs compare to those announced by the US?

US President Joe Biden’s administration is raising tariffs on Chinese electric vehicles to 100% from the current 25%. At that level, US tariffs block virtually all Chinese EV imports.

That is not what Europe is trying to do.

EU authorities want affordable electric cars from abroad to meet their goals of cutting greenhouse gas emissions by 55% by 2030, but without the subsidies that EU leaders say constitute unfair competition.

The planned tariffs are intended to level the playing field by approximating the size of excessive or unfair subsidies available to Chinese automakers.

European countries also subsidise electric cars. The question in trade disputes is whether the subsidies are fair and accessible to all carmakers, or whether they distort the market in favour of one party.

How cheap are Chinese electric vehicles?

Chinese automakers have learned to make electric vehicles cheaply amid fierce price competition in their country, the world’s largest auto market.

BYD’s Seal U Comfort model sells for the equivalent of €21,769 ($23,370) in China but €41,990 ($45,078) in Europe, according to figures from Rhodium Group, an independent data analytics research company. The base model of BYD’s Seagull compact EV — due to arrive in Europe next year — sells in China for the equivalent of about $10,000.

What does this mean for European drivers and car manufacturers?

It’s unclear what impact the tariffs will have on car prices. Chinese automakers can produce some vehicles so cheaply that they might absorb the tariffs in the form of lower profits rather than higher prices.

While consumers might benefit from cheaper Chinese cars in the short term, allowing unfair practices could eventually mean less competition and higher prices in the long term, the commission argues.

Chinese carmakers currently sell their vehicles in Europe at much higher prices than the same cars in China, meaning they favor profits over market share, even when accounting for their recent market share gains. Five of BYD’s six models would still turn a profit in Europe even with a 30% tariff, according to calculations by Rhodium Group.

The fear in Europe is that Chinese competitors will lower their prices to closer to those charged in China in order to gain an even larger share of the market.

What is China’s possible reaction?

Beijing strongly criticised the higher tariffs when they were announced, calling them “a blatant act of protectionism”.

On Thursday, He Yadong, a spokesman for the Chinese Ministry of Commerce, said the two sides had held several rounds of technical consultations and noted that the EU would not make a final decision until four months from now.

“It is hoped that the European side and the Chinese side will move in the same direction, show sincerity, speed up the consultation process and reach a mutually acceptable solution as soon as possible on the basis of facts and rules,” he said at a weekly press conference in Beijing.

He also said China hopes the EU will seriously listen to the opinions of European automakers and governments that have spoken out against tariffs, and avoid anti-subsidy measures that will harm cooperation between the Chinese and European auto industries.

It is not clear what the deal might look like. One measure could be to agree on minimum prices for Chinese cars.

For its part, China could retaliate against European products such as imports of pork or brandy, or against imports of European luxury cars.

In the longer term, Chinese carmakers could avoid tariffs by making their cars in Europe. BYD is already building a plant in Hungary, while Chery has a joint venture to make cars in Spain’s Catalonia region.