EU presses ahead with up to 45% tariffs on China-made EVs, raising spectre of trade war

The EU has voted to press ahead with hefty tariffs on China-made electric vehicles, laying the ground for what may become a trade war between two of the world's biggest economic regions.

The proposed “definitive countervailing duties” – which are up to 45 per cent, and are scheduled to go into effect from October 31 and will last for five years – were approved after the EU “obtained the necessary support” from its member states, the European Commission said in a statement on Friday.

The new tariff rates – which will be on top of the EU's standard 10 per cent car import duty – range from 7.8 per cent for Elon Musk's Tesla Motors to 35.3 per cent for SAIC and other Chinese EV makers that were found not to have co-operated with the EU's anti-subsidy investigation.

Ten EU members voted in favour of the tariffs, while five voted against and 12 abstained, according to reports quoting EU sources.

Germany, Europe's biggest economy, and its industry majors Volkswagen and BMW, are opposed to the tariffs. The car manufacturers said that it was “the wrong approach” and “a fatal signal for the European automotive industry”. The US-French-Italian group Stellantis reiterated its commitment to “free and fair competition”.

However, the EU and China will continue to “work hard to explore an alternative solution that would have to be fully WTO [World Trade Organisation]-compatible, adequate in addressing the injurious subsidisation established by the commission's investigation, monitorable and enforceable”, the commission added.

The Commission also said that it will not collect provisional duties dating back to July, when the EU first hit China-made EVs with up to 37.6 per cent of tariffs.

In the lead-up to Friday's decision, Beijing had urged the EU to delay implementing the tariffs until a compromise can been reached. China's Chamber of Commerce did not agree with the EU on what the former perceived to be “trade protectionism” measures, Chinese state media had reported.

Following the vote, China's Commerce Ministry hit out at the EU, calling the tariffs “unfair” and “unreasonable”. However, it acknowledged that they could still negotiate to resolve the issue.

“China firmly opposes the EU's draft final ruling, but has also noted the EU's political will to continue to resolve the issue through negotiations,” according to the ministry, adding that discussions with the EU are continuing and are scheduled to resume on Monday.

Beijing did not explicitly say it would retaliate; rather, it said it would “avoid escalation of trade frictions” through discussions. The ministry even offered what it called a “flexible price commitment” on the minimum pricing of vehicles the EU imports from China, to alleviate concerns that Chinese-made EVs would overrun the EU market.

However, China in August had already started anti-dumping investigation into certain EU exports, as well as an anti-subsidy investigation into EU dairy products. The EU launched a challenge to the dairy investigation at the WTO last week.

China's Commerce Ministry has also met with car makers and industry associations to discuss raising import duties on large-engine gasoline vehicles, which would hit German producers hardest.

Germany's exports of vehicles with engines of 2.5 litres or larger to China were worth $1.2 billion last year, Chinese customs data showed.

The EU believes China benefits from unfair subsidies after it formally began an investigation into Chinese EVs in October last year to determine if they breach anti-subsidy regulations.

An anti-subsidy investigation is initiated when the commission receives a valid complaint from an EU industry, providing sufficient prima facie evidence that a country is subsidising companies exporting a particular product to the EU and that this is causing injury to its industry.

The EU and China have conflicting views on this: the bloc wants to protect its own industry, while the world's second-largest economy sees this as selfish and counter to global trade rules, which are meant to promote fair competition, encourage economic development and prevent any related conflicts.

EU imports of EVs from China raced to $11.5 billion in 2023, from $1.6 billion in 2020 – a nearly 620 per cent surge that accounted for 37 per cent of all EV imports in the EU, latest data from New York-based research firm Rhodium Group shows.

In June, the commission announced it had provisionally concluded that the battery EV value chain in China benefits from unfair subsidies.

Chinese EV producers benefited from favourable terms, including the provision of preferential export insurance, income tax reductions and exemptions, dividend tax exemption, import and export tax rebates, value-added tax exemptions and rebates, and government provision of goods and services for less than adequate remuneration, the probe found.

“The investigation also examined the likely consequences and impact of measures on importers, users and consumers of BEVs in the EU,” the Commission had said.

“It is therefore foreseeable that the subsidised imports of the product concerned could continue to negatively affect the [EU] industry's economic situation.”

China is also facing fire from the US, after the Commerce Department last month proposed to ban the sale of internet-connected vehicles with Chinese and Russian software and hardware on American roads, which could affect consumers and US car makers, and possibly leading to higher prices.