The European Commission’s decision to impose additional provisional tariffs of up to 38 per cent on Chinese electric vehicles (EV) on Wednesday drew a predictably sharp response from Beijing. The ministry of commerce accused Brussels of weaponising and politicising trade issues, and vowed to take “all necessary measures” to protect its companies.
“This move by the European side not only harms the legitimate rights and interests of China’s EV industry, but will also disrupt and distort the global automotive industrial and supply chains, including the EU’s,” the ministry said. “It will affect the atmosphere of China-EU bilateral economic and trade co-operation. The move is not conducive to the interests of EU consumers themselves, and will also jeopardise the green transformation of the EU itself and the overall situation of global co-operation on climate change.”
The extra tariffs, which come on top of a standard 10 per cent levy on all Chinese EVs, range from 17.4 per cent for market leader BYD to 31.8 per cent for SAIC. EVs made by Geely, another major Chinese manufacturer which owns the Swedish car brand Volvo, will face an extra 20 per cent tariff.
The additional tariffs, which follow a months-long investigation into China’s subsidies for its EV industry, are higher than many trade experts expected. But they are nowhere near the 100 per cent tariff announced by the Biden administration and are less than the 40 per cent recently imposed by Turkey.
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Crucially, although the extra tariffs will be applied from July 4th they will not become permanent until EU member state governments approve them by qualified majority voting later this year. Germany, Sweden and Hungary have already expressed their opposition and others are also likely to vote against the measures, which are backed by France and Spain.
China’s response to Wednesday’s decision is likely to be informed by the internal negotiation that will unfold within the EU over the coming months. Beijing will wish to demonstrate that it can hit where it hurts without overreacting in a way that undermines the arguments of those on the EU side urging restraint.
This points to a response that it targeted both geographically and in terms of sectors to achieve maximum political leverage in Europe. Last month China’s ministry of commerce wrote to EU trade commissioner Valdis Dombrovskis warning that it could hit the aviation and agricultural sectors.
Aviation would hurt France, the most powerful champion of the tariffs on Chinese EVs, and Beijing has already launched an investigation into whether French cognac enjoys an unfair advantage.
Targeting agricultural products would hit numerous EU member states, including Ireland, but could help to mobilise the politically powerful farming lobby against the EV tariffs.
China will wish to avoid a trade war with the EU which is less hostile to its interests than the US and remains its biggest trading partner. The EU also has an interest in de-escalation as long as it can protect its own industrial base and secure a share of the green technology sector.
Chinese EV producers have already started establishing manufacturing plants in Europe, following the pattern set by Japanese carmakers when they faced protectionist moves decades ago. Further such moves could help to reassure Beijing’s European trading partners while deepening the economic entanglement between China and the EU.
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