FRANKFURT, Germany (AP) — The European Union is slapping significantly higher tariffs on electric cars imported from China, making electric vehicles the latest flashpoint in a broader trade dispute over Chinese government subsidies and Beijing’s burgeoning exports of green technology to the 27-nation EU.
The tariff hikes will take effect on Friday, with a final decision expected within four months.
Here are some basic facts about the EU’s planned tariffs:
What has the European Union done?
After an eight-month investigation, the European Commission, the EU’s executive arm, found that Chinese electric car manufacturers were receiving huge government subsidies that allowed them to undercut EU rivals, grab big market share and potentially threaten European jobs.
The European Union announced the tariff hikes on June 12, and they will come into effect on Friday. The tariffs are provisional – the total amount will be calculated but will not have to be paid until approved by EU member states in a vote by November 2. The EU will only levy the tariffs if further investigations show that Europe’s car industry would have suffered significant harm without them.
This gives the EU and Chinese governments time to negotiate. Discussions are also taking place between EU Economic Commissioner Valdis Dombrovskis and Chinese Trade Minister Wang Wentao, as well as at technical expert level.
Raising tariffs is not an end in itself but a “measure to correct imbalances,” European Commission spokesman Eric Mammer said on Thursday. “We are very hopeful that we can find a solution that will avoid us having to go down this path.”
If applied, the taxes would be 17.4 percent on BYD cars, 19.9 percent on Geely cars and 37.6 percent on cars exported by China’s state-owned SAIC. Geely owns brands such as Polestar and Sweden’s Volvo, while SAIC owns Britain’s MG, one of Europe’s best-selling EV brands. Other Chinese EV makers, including Western companies such as Volkswagen, BMW and Tesla, would be subject to tariffs of at least 20.8 percent. The commission said Tesla could be subject to an “individually calculated” tax rate if the tariffs were formally imposed.
Under EU rules, the tariff hikes could be blocked before the Nov. 2 deadline by what the EU calls a “qualified majority” vote, which currently seems unlikely. A qualified majority would mean at least 15 of the EU’s 27 member governments joining the coalition, representing more than 65% of the EU’s population.
Why did the Commission take action?
According to the European Commission, Chinese-made electric vehicles have surged from 3.9% of the EV market in 2020 to 25% by September 2023, driven in part by unfairly below-industry pricing in the EU.
The committee said Chinese companies achieved this by benefiting from subsidies along the entire production chain, from cheap factory land provided by local governments, to below-market supplies of lithium and batteries by state-owned enterprises, to tax breaks and low-interest loans from state-owned banks.
The rapid expansion of market share has raised concerns that Chinese cars could ultimately threaten the EU’s ability to produce its own green technologies needed to combat climate change, as well as the jobs of 2.5 million at-risk workers in the auto industry and more than 10.3 million people whose jobs indirectly depend on EV production.
Subsidized solar panels from China have devastated European producers, and European governments do not want to see that experience repeated in their own auto industries.
Unusually, the European Commission acted on its own, without complaint from the European auto industry. Industry leaders and Germany, home to BMW, Volkswagen and Mercedes-Benz, had been skeptical of the subsidy investigation because many of the cars targeted by the tariffs are made by European companies and China could retaliate in autos or other sectors.
How do the EU tariffs compare to those announced by the US?
The Biden administration will increase tariffs on Chinese-made EVs to 100% from the current 25%. At this level, US tariffs will effectively block all imports of Chinese-made EVs.
That is not what Europe is trying to do.
EU officials want affordable electric cars from abroad to help meet a target of cutting greenhouse gas emissions by 55 percent by 2030, but without subsidies that EU leaders see as unfair competition.
The proposed tariffs are intended to level the playing field by approximating the amount of excessive or unfair subsidies available to Chinese automakers.
European countries also subsidize electric cars. The issue in the trade dispute is whether the subsidies are fair and available to all automakers, or whether they distort the market in favor of one side.
Just how cheap are Chinese-made EVs?
Chinese automakers have learned how to make electric cars cheaply amid fierce price competition in the world’s largest auto market.
BYD’s Seal U Comfort model sells for the equivalent of 21,769 euros ($23,370) in China, but 41,990 euros ($45,078) in Europe, according to data from Rhodium Group. The base model of BYD’s compact Seagull, due to arrive in Europe next year, sells for about $10,000 in China.
What does this mean for European drivers and car manufacturers?
It’s unclear how the tariffs will affect auto prices: Chinese automakers can make some cars so cheaply that they may be able to absorb the tariffs in the form of lower profits rather than higher prices.
While consumers may benefit from cheaper Chinese cars in the short term, allowing unfair practices could reduce competition and lead to higher prices in the long term, the commission argues.
Currently, Chinese automakers often sell their cars in Europe at prices much higher than they would pay in China, meaning they prioritize profits over market share, even given recent market expansion. According to Rhodium Group calculations, five out of six BYD models would be profitable in Europe even with a 30% tariff.
There are fears in Europe that Chinese rivals will lower their prices to be closer to those in China and grab even more market share.
How will China respond?
When the tariff hikes were announced, the Chinese government harshly criticized them, calling them a “blatant protectionist act.”
China’s Commerce Ministry spokesman He Yadong said on Thursday that the two sides have held several rounds of technical consultations, and noted that the EU’s final decision is not likely to be made for four months.
“We hope that the European and Chinese sides can move in the same direction, show sincerity, speed up the consultation process, and reach a mutually acceptable solution based on facts and rules as soon as possible,” he told a weekly news conference in Beijing.
He also said China hopes the EU will seriously listen to the voices of European automakers and governments opposed to the tariffs and avoid anti-subsidy measures that could undermine cooperation between the Chinese and European auto industries.
It’s unclear what that agreement would entail. One move could be to agree on a minimum price for Chinese cars.
China could retaliate against imports of European products such as pork and brandy, or even European luxury cars.
In the longer term, Chinese automakers could avoid tariffs by building cars in Europe: BYD is building a factory in Hungary, while Chery has a joint venture making cars in the Spanish region of Catalonia.
___
Moritsugu reported from Beijing.
David McHugh
Ken Moritsugu
