As the European Union (EU) grapples with whether to impose additional tariffs on Chinese-built electric vehicles (EVs), member states remain divided. The decision, which has significant economic and political ramifications, highlights the challenges Brussels faces in garnering unified support for its largest trade case to date.
Germany vs. France: divergent views on tariffs
Germany, heavily reliant on the Chinese market for its automotive sector, opposes the proposed tariffs. Last year, a third of German carmakers’ sales were in China. “Germany seeks a negotiated solution with Beijing,” said a government source, reflecting the nation’s cautious stance. German automakers argue that tariffs would have more negative impacts than benefits, potentially increasing EV costs for consumers and undermining the EU’s carbon neutrality goals.
In contrast, France stands as one of the staunchest proponents of the tariffs. Alongside France, Italy and Spain, which collectively represent 40% of the EU population, have expressed support for the tariffs. “Europe must defend itself if our companies are harmed and do not compete on equal terms,” asserted Spain’s economy ministry.
Weighing the pros and cons
The debate over tariffs reveals a complex landscape within the EU. An informal poll by Reuters indicates that many countries, including the Czech Republic, Greece, Ireland, and Poland, are still deliberating. Belgium, with its caretaker government, and the Netherlands, having just formed a new government, add to the uncertainty.
The EU is poised to confirm provisional duties of up to 37.6% on Chinese brands like BYD, Geely, and SAIC, as well as on China-made models of Tesla, BMW, and other Western automakers. In October, EU members will vote on whether to extend these tariffs for several years, with a “qualified majority” of at least 15 countries representing 65% of the EU population needed to pass the motion.
Potential retaliation and broader implications
Beijing has already threatened retaliation, which could include tariffs on EU exports such as cognac, pork, or luxury cars. This potential backlash underscores the delicate balance the EU must strike. While the European Commission argues that tariffs are necessary to counteract subsidies like cheap loans and raw materials that give Chinese manufacturers an unfair advantage, opponents fear the broader economic fallout.
“Tariffs could also give the EU leverage in negotiations with Beijing and push producers to make cars in the EU,” noted Hosuk Lee-Makiyama, director of the European Centre for International Political Economy. He added that final positions will depend on what Beijing offers in negotiations, suggesting that a vote would signal failed negotiations.
The Commission’s stance and future outlook
The Commission has initiated this investigation without an industry complaint, a first in its trade case history. It argues that the goal is to create a level playing field rather than shutting Chinese carmakers out. The duties are seen as a tool to counteract China’s market distortions and protect the EU’s green and tech industries, which lag behind global competitors.
This investigation could mark the beginning of a more assertive EU stance against Beijing. A recent 712-page report on Chinese state interference and subsidies provides extensive evidence of China’s unfair trade practices, spanning industries from steel to semiconductors and renewable energy. The report signals the EU’s intention to take a firmer approach, having learned from past experiences, such as the collapse of its solar panel industry following a failed tariff imposition on Chinese imports a decade ago.
“This report sets the scene and shows how and why Europe is changing its policies,” said Alicia Garcia Herrero, a senior fellow at the Brussels-based economic thinktank Bruegel. “It’s also a message especially for the German chancellery.”
Navigating a complex trade landscape
As the EU contemplates tariffs on Chinese EVs, the decision underscores the broader challenges of balancing economic interests with strategic trade policies. While Germany advocates for negotiation, France and other nations push for protective measures. The outcome will significantly impact the future of EU-China trade relations and the global EV market, with potential repercussions extending well beyond the automotive industry.