Are EU’s tariffs on Chinese EVs fair or even rational?

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In October 2023, the European Commission launched an anti-subsidy investigation into the imports of electric vehicles (EVs) originating from China. This investigation and subsequent tariffs have attracted significant international attention.

On July 4, 2024, based on preliminary findings, the European Commission announced temporary tariffs (17.4 percent to 37.6 percent) on EVs made in China, effective July 5. On August 20, the Commission disclosed to interested parties a draft decision to impose definitive countervailing duties (17 percent to 35.3 percent) on imports of EVs from China. On October 4, EU member states voted to adopt the definitive tariffs, allowing the Commission to impose high anti-subsidy tariffs on Chinese EVs for a period of five years, in addition to existing tariffs (10 percent).

The European Commission claimed that it was a move to ensure fair competition, but the high tariffs against China are undeniably politically motivated and exhibit strong protectionist tendencies. This action not only fails to enhance the competitiveness of the EU’s domestic EV industry, but also jeopardizes the future of China-EU economic relations, which is not in the EU’s best interests.

Fair competition or political tricks?

A review of the process from launching the anti-subsidy investigation to the proposal of definitive measures reveals that the EU’s actions were largely politically motivated, rather than based on a rational analysis of the impact on its internal market.

Notably, the Commission’s investigation was not triggered by complaints from local businesses, but primarily by pressure from the governments of France and a few other member states. This contrasts sharply with past EU trade remedy investigations concerning China, which typically started from complaints from European enterprises.

Furthermore, Chinese EVs have not significantly impacted the EU market or caused harm. According to Transport & Environment, a Brussels-based environmental organization, imports of China-made EVs accounted for only about 8 percent of the EU’s EV market in 2023. This raises questions about the validity of the Commission’s rationale for initiating the investigation based on “threats of economic injury” rather than “actual injury,” as such a basis lacks a solid foundation and contradicts the principles of fair trade.

It is also worth noting that the investigation seemed to have targeted Chinese domestic brands specifically. Among the China-made EVs exported to the EU, Tesla has the highest market share, yet the Commission gave it a tariff rate of 7.8 percent, significantly lower than that for Chinese brands. SAIC, the largest Chinese EV exporter to the EU, faces a tariff as high as 35.3 percent, the highest among all EV manufacturers.

Additionally, the Commission can be said to have abused investigative procedures and violated principles of due process, including excessive information requests from Chinese enterprises, even demanding intellectual property such as proprietary battery formulas. The process by which the EU assessed whether subsidies to Chinese firms posed a threat to the European single market lacked transparency and did not leave Chinese firms reasonable time to respond to inquiries.

The EU professes to champion fair competition, but in reality its anti-subsidy investigation against Chinese EVs was a protectionist move driven by political motivations, which is anything but fair.

Boosting or undermining local competitiveness?

Some international commentators believe that the EU’s investigation and tariffs on Chinese EVs aimed to buy time for its local auto industry’s transition to EVs and to enhance its competitiveness. However, from multiple perspectives, protectionist measures do not aid in boosting the competitiveness of EU automakers.

The new energy vehicle (NEV) sector, the EV sector in particular, differs significantly from the traditional gasoline vehicle industry in both the industrial and innovation chains. Chinese firms have excelled in the field primarily due to fierce competition in the domestic market, active innovation in smart driving technologies, a comprehensive supply chain advantage, and rapid deployment of infrastructure like public charging stations, rather than subsidies. In fact, competition from Tesla and European manufacturers has been the largest driver of ongoing innovation among Chinese EV companies.

Take CATL for example. As the world’s largest EV battery manufacturer, CATL’s latest batteries can charge for 10 minutes to provide a range of 600 kilometers and can be fully charged in 30 minutes for a 1000-kilometer range.

Hubert Testard, an economist at Sciences Po University in Paris and former economic and financial affairs counselor at the French Embassy in China, said earlier this month, “China, in less than a decade, has made huge strides in technology. This isn’t an unfair competition, but a demonstration of China’s ability to quickly apply new innovations.”

Imposing high tariffs on Chinese EVs will not only dampen innovation in EU carmakers due to a lack of competitive pressure but also slow down their transition to EVs. For European firms, investing in China and collaborating with Chinese manufacturers is crucial for accelerating their transition and enhancing competitiveness.

In February this year, Chinese EV manufacturer XPeng Motors and Germany’s Volkswagen Group signed a cooperation agreement to accelerate EV development, marking significant progress in their partnership established in July 2023. Ralf Brandstätter, Board Member of Volkswagen AG for China, stated, “Through the partnership with XPeng, we are not only accelerating development times, but also boosting efficiency and optimizing cost structures.”

In this context, the tariffs imply that EVs made in China by European companies will have a hard time entering the EU market, which will inevitably impact their capacity for continued investment and innovation.

SEAT, a Spanish automaker belonging to the Volkswagen Group, stated on October 4 that the tariffs would severely harm the financial stability of the company and could threaten employment, warning that both SEAT and the European auto industry would suffer “significant negative consequences.” Similarly, Mercedes-Benz said in a statement that countervailing duties would impair the competitiveness of the industry over the long term.

Moreover, imposing high tariffs on China-made EVs will raise overall prices in the European EV market, limiting the purchasing power and willingness of low- to middle-income individuals to buy EVs. This is detrimental to stimulating the demand for NEVs from the supply side and therefore counterproductive to the automotive industry’s transition to EVs.

Maarten Steinbuch, a professor at Eindhoven University of Technology in the Netherlands, believed that while the European Commission’s actions appeared to be in the interest of protecting the European market, “the transition to electric driving may be delayed.” “Many believe that this is a step towards a trade war between Europe and China, which will ultimately harm the European economy,” added Croatian political analyst Mladen Plese.

Cooperation or confrontation?

To achieve its 2050 climate neutrality goals, the EU proposed a target to halt the sale of gasoline vehicles and small passenger cars by 2035. Given the current severe shortage of NEV manufacturing capacity in the EU, imposing high tariffs on Chinese EVs clearly undermines this objective.

The German Association of the Automotive Industry (VDA) stated on July 3 that advancing EV mobility in Europe means relying on raw materials and (battery) technologies from third countries, particularly China; hence, maintaining an open market and constructive trade relations (with China) would be crucial.

This sentiment was echoed by Germany, Hungary, Malta, Slovakia, and Slovenia, which voted against the final decision on October 4, and 12 other member states abstaining, including Austria, Belgium, Finland, Luxembourg, Sweden, and Spain.

As German broadcaster ARD reported, German Finance Minister Christian Lindner promptly warned the EU against entering into a trade war with China, stating that the tariffs on Chinese electric cars would be wrong. Hungarian Foreign Minister Péter Szijjártó remarked that the tariffs would stifle the future competitiveness of the European economy. Slovenian Economy Minister Matjaž Han also called for practical cooperation with China.

Automotive industry representatives from Bulgaria, Poland, Croatia, and Malta noted that the tariffs would increase the financial burden on European consumers, and hinder healthy competition and green transition in the European EV sector.

Additionally, the EU’s lagging development of infrastructure is another major reason for the low demand and supply of EVs within its borders. According to estimates by the European Automobile Manufacturers’ Association (ACEA), by 2030, the EU will need 8.8 million public charging stations to meet consumer demand. However, according to data released by the European Commission, as of the end of 2023, there were approximately 630,000 public charging stations in the EU, far below the target of 8.8 million.

The slow development of infrastructure will undoubtedly inhibit the production and sales of EVs. In this regard, Chinese new energy battery companies, along with Huawei and ZTE which possess full liquid-cooled supercharging technologies, could work with EU energy companies to achieve mutual benefits in accelerating the building of public charging stations in Europe.

At present, green transition is a central theme in economic transitions across China and the EU. Despite competition in the field of green development, both sides have strong complementarities in terms of raw materials, technology, markets, capital, and expertise, with deep integration and enormous potential for future cooperation. Given the economic sizes and important international roles of both China and the EU, their collaboration is crucial in addressing the escalating challenges of climate change.

The European Commission and some EU member states should focus on strengthening their own capacities rather than directing their efforts at anti-subsidy investigations and tariffs and even taking protectionist measures. Protectionism will not only slow down their green transition but also disrupt the stability of the global NEV supply chain and adversely affect global green transition.

In recent years, with changing dynamics in economic and technological power between China and the EU, China’s competitive edge in the new energy and digital sectors has significantly increased, while the EU has accelerated its “de-risking” measures against China. As a result, EU-China economic relations are entering a new phase marked by more frequent frictions.

However, with China-EU economic ties close and deeply intertwined, it is not realistic for the EU to “decouple” from China, and economic cooperation remains a cornerstone of their relationship. Exploring avenues for collaboration amid increasingly complex and intense competition will therefore become the new norm in China-EU economic relations.

While China firmly opposes the EU’s imposition of tariffs, it has consistently approached negotiations with maximum sincerity and attentively considered the views and demands of representatives of both Chinese and European related industries. This demonstrates China’s ongoing commitment to open cooperation and flexibility in seeking solutions within the framework of World Trade Organization rules.

The EU should also balance its own interests with its global responsibilities and engage with China in a rational and pragmatic manner to prevent the escalation of trade tensions. If both sides can reach a final resolution through negotiations, it could serve as an opportunity to establish new consensus on healthy competition and cooperation in the new energy sector, contributing greater certainty to the positive and healthy development of China-EU economic ties.

As long as both China and the EU maintain an open and positive attitude and address the other’s major concerns, there remains potential for mutually beneficial new cooperation models in the realm of the green economy, thereby jointly leading the global green transition.

The author Sun Yanhong is a Senior Research Fellow and Head of the Division of European Economic Studies at the Institute of European Studies (IES), Chinese Academy of Social Sciences (CASS).

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