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The European Commission is imposing temporary punitive tariffs on Chinese-made electric cars imported into Europe. Brussels authorities justify the move by distorting competition by paying unfair subsidies to carmakers. EU member states must now decide within four months whether to impose the punitive tariffs. These will be in effect for five years.
The punitive tariffs range from 17.4% to 37.6%, depending on the manufacturer, and are imposed in addition to the existing 10% import tariff on electric vehicles. As the punitive tariffs are only applied temporarily, customs authorities must request the tariffs in the form of a guarantee from Friday (July 5). Depending on the decision of the EU countries in the autumn, the information will be withheld or published again. By then, the European Commission and China may also be able to resolve the trade dispute through negotiations.
EU countries are divided over punitive tariffs. France is one of the strongest supporters. China is an important sales market for German automakers, and Germany is worried that Beijing may retaliate. In addition, many German automakers have outsourced electric vehicle production to China, so they will also be affected by import tariffs.
In Austria, the economy ministry said it was currently studying the “possible effects” of punitive tariffs. Austrian Economy Minister Martin Koch said in a written statement that Austria and the European Union “have a lot to lose from retaliatory threats and ultimately a trade conflict.” The best option is to negotiate a solution with the Beijing government. “It is now clear to us that China’s illegal subsidies are distorting competition. If China does not take quick steps in the right direction, we must reserve the possibility of actually imposing punitive tariffs,” Koch said.
The vote planned for the autumn by EU countries is subject to a special rule: if a qualified majority (at least 55% of countries representing at least 65% of the EU population) votes in favor of the tariffs, then they will definitely be implemented. If the qualified majority votes against, the tariffs will fall again. If there is no clear majority in favor of a certain direction, the Commission will decide. The first signs of the mood in EU countries will emerge in the next 14 days. The measure should be adopted by a simple majority of the Union members – however, the vote is not legally binding.
The tentative punitive tariffs are calculated based on the amount of subsidies received by each automaker: BYD will be subject to a 17.4% import tariff, Geely (Volvo Cars) and Chinese state-owned Volkswagen partner group SAIC will be subject to a 19.9% import tariff37, 6%. Other automakers that cooperate with the EU investigation will also be subject to a weighted average tariff of 20.8%. Electric vehicles produced by manufacturers that do not cooperate will be subject to a 37.6% tariff.
Wifo: No significant price increases expected
Economic research institute Wifo expects that the EU’s current tariffs on Chinese electric vehicles will not lead to a significant increase in European prices in the long run. Imports from China are likely to fall sharply, with an estimated drop of 42%, Wifo wrote in a policy brief published on Thursday. The European auto industry could benefit from this.
With an average increase of 0.3% to 0.9%, the price impact should be fairly small. However, “the impact in the short term could be greater,” the economic researchers said in an analysis prepared by Wifo together with the Kiel Institute for the World Economy (IfW Kiel) and the Austrian Institute for Supply Chain Intelligence (ASCII).
“Value creation in the automotive industry in the EU is expected to grow by 0.4%, while in China it will fall by 0.6%, “explains Julian Hinz, director of trade policy research at IfW Kiel. Overall, the economists expect that the fall in imports will be offset by increased sales by European producers in the EU and, in some cases, by higher imports from third countries.
Wifo boss Gabriel Felbermayr welcomed the regulations but warned Brussels policymakers that tensions with China were about to escalate. “In principle, it is right for the EU to respond to China’s trade-distorting practices with countervailing duties, but at the same time the EU should make every effort to reach a negotiated outcome.” There is still time until early November 2024, when the final tariffs will be imposed. Before then, the European Commission must also “address the doubts that some member states have about its approach and adjust the countervailing duties if necessary.”
Economists and some economic experts believe that tariffs on electric vehicles are controversial. There are concerns that China will take harsh countermeasures. For example, there are rumors that anti-dumping duties of 50% will be imposed on pork imported from the EU. Wifo estimates: “This is unpleasant for pig farmers, especially in Denmark, Spain and Germany. However, since exports have been falling sharply for many years, this measure will probably have only a small impact on the prosperity of the EU.” Felbermayer: “Whether legal or not, counter-tariffs are to be expected. But China has not yet brought out any sharper weapons, which shows that it is willing to negotiate.”
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