The European Union took the next step on Thursday toward imposing new tariffs on Chinese-made electric cars, telling automakers to get guarantees from banks that they can pay the taxes when they are finalized in October.
The move was expected: The EU announced on June 12 that it would impose additional tariffs of between 17 and 38 percent on electric vehicles imported from China after an EU investigation uncovered what authorities in Brussels described as unfair subsidies by the Chinese government to electric vehicle makers.
China’s government denies subsidizing the electric vehicle industry, saying low prices for Chinese-made electric cars instead reflect strong competition and innovation.
The two sides began talks to resolve the dispute on June 22. “We continue to consult closely with China as we seek a mutually acceptable solution,” EU Trade Commissioner Valdis Dombrovskis said.
The temporary tariffs mean automakers will be required to provide financial guarantees to European countries for eventual payment, although they do not have to remit any funds at present.
The provisional tariffs vary widely across Chinese automakers, based on EU estimates of the size of government subsidies for each manufacturer, with the highest tariffs being imposed on manufacturers that have disclosed little about their subsidies, including a 37.6% tariff on SAIC Motor Corp., 17.4% on BYD and 19.9% on Geely.
U.S. electric car maker Tesla makes cars for the European market in Shanghai but is ramping up production in Germany, and tariffs against the company would be calculated separately and could be imposed in the autumn.
Automakers will have to guarantee they can make payments on cars arriving in the European Union between Friday and October, but the bloc must decide in the coming months whether subsidies for Chinese cars have seriously damaged Europe’s auto market.
As the housing market crash has dampened Chinese households’ spending confidence, governments around the world are worried that China may turn to exports to pull itself out of its economic difficulties. In May, President Biden quadrupled U.S. tariffs on Chinese-made electric vehicles to 100%.
Turkey last month imposed a 40% tariff on gasoline-powered cars and gasoline-electric hybrids imported from China. Turkey already imposed tariffs on Chinese-made electric cars last year. Canada on Tuesday launched a trade investigation that could lead to tariffs on Chinese-made electric cars.
Brazil is gradually raising tariffs on electric vehicles imported from anywhere starting this month, following a surge in imports from China earlier this year.
China has warned of retaliation against the European Union. China’s Ministry of Commerce said on June 17 that it had launched an investigation into whether pork from the European Union is being unfairly dumped in China at low prices. The case could lead to tariffs on dozens of products, from pork fillets to pickled pork intestines.
In January, the Commerce Department launched a trade case against imports of mostly French cognac and other European wine-based spirits. The French government has been an early supporter of tariffs on Chinese-made electric vehicles.
China’s auto industry has suggested that if the EU imposes tariffs on electric vehicles, it should also impose tariffs on large gasoline-powered vehicles imported from China. China imposes a 40% sales tax on cars and sports utility vehicles with large gasoline engines, most of which are imported from North America and Europe.
China also imposes a basic tariff of 15% on imported cars. Europe imposes a basic tariff of 10% on cars, and the United States imposes a 2.5% tariff. The various tariffs currently being developed or imposed are in addition to these basic tariffs.
China is returning to a strategy it employed the last time it had a major trade dispute with the European Union over Chinese exports of low-cost solar panels to Europe in 2013. At the time, China persuaded Germany to lead a coalition of EU member states that blocked tariffs on solar panels.
But it may be hard for China to stop tariffs on electric cars. Europe’s solar industry was devastated a decade ago when the EU rolled back tariffs, and few in Europe want to see a similar fate for electric car production.
The European Union has also tightened rules to eliminate tariffs: China must win the support of a majority of member states in a final vote in October, and those countries must represent at least 65% of the EU’s population.
Member states also have a preliminary vote in two weeks on whether to support the temporary tariffs, but the vote is not binding on the European Commission, the EU’s executive arm.
Chinese automakers are starting to build factories in Europe to meet demand and avoid tariffs, following a strategy pioneered by Japanese automakers to get around U.S. trade restrictions. “It’s exactly what Toyota did in the 1980s,” said John Zeng, an analyst at GlobalData Automotive.
But China has a large number of domestic auto factories and the capacity to produce twice as many cars as are sold in the world’s largest auto market.
The trade dispute has divided Europe’s auto industry. German automakers oppose the tariffs. German automakers are facing steep declines in sales in China as Chinese automakers gain market share at the expense of German automakers. So German automakers are increasing exports from their factories in China, including to Europe.
But European auto parts makers tend to support the imposition of tariffs, as major automakers such as Volkswagen increasingly use parts made by Chinese companies to assemble cars.
