After EU imposes hefty EV tariffs on China, fears of a trade war

EU leaders have given the green signal to extra tariffs on electric vehicles from China despite opposition from countries like the bloc’s largest economy, Germany, where automakers condemned the decision.

The proposed duties of up to 45%, due to be imposed from next month for five years, will cost automakers billions of extra dollars to bring the vehicles into the bloc.

The EU move has also renewed fears of a damaging trade war with China.

The European Commission believes the tariffs would counter what it sees as unfair Chinese subsidies, but it has left some wiggle room, saying it would continue talks with Beijing.

“The electric vehicle sector holds huge potential for Europe’s future competitiveness and green industrial leadership. EU car manufacturers and related sectors are already investing and innovating to fully develop this potential,” European Commission president Ursula von der Leyen said. “Wherever we find evidence that their efforts are being impeded by market distortions and unfair competition, we will act decisively. And we will do this in full respect of our EU and international obligations — because Europe plays by the rules, within its borders and globally. This anti-subsidy investigation will be thorough, fair, and fact-based.”

The Commission had provisionally approved the step in June following an inquiry that found that Chinese state aid to auto manufacturers was unfair.  

China denies that claim and has threatened to retaliate with its own tariffs on European sectors like dairy, brandy and automobiles. China’s commerce ministry said the tariffs would “shake and hinder” the confidence of Chinese firms in Europe.

“We strongly encourage the EU to … delay the implementation of these tariffs, and prioritise resolving disputes and trade tensions through consultations and dialogue,” the China Chamber of Commerce to the EU said in a statement.

The tariffs of up to 35.3% come on top of existing duties of 10%. Ten member states including France, Italy and Poland reportedly backed the move. But five nations, including Germany and Hungary, voted against it, and 12 such as Spain and Sweden, abstained.

Leading German automakers BMW and Volkswagen slammed the EU decision. BMW said it was a “fatal signal” for the bloc’s car industry, while VW described it as the “wrong approach.”

But Brussels says the measures are needed to protect European carmakers in an industry that provides jobs to some 14 million people in the EU but gets no benefit from substantial state subsidies like in China.

“Beyond the imposition of tariffs, we have to continue going forward in this negotiation, since it is important to protect a sector as strategic as the automobile sector while avoiding an escalation of trade measures, which could be detrimental to all,” Spain’s economy minister Carlos Cuerpo said. 

“We are against any hypothesis of a ‘trade war’ and will work together to avoid it. We must preserve the industrial and commercial partnership with China, with whom we want to continue working in a win-win logic based on the principle of reciprocity, also for the sake of global economic stability,” Italy’s industry minister Adolfo Urso said.