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Chinese EV-Makers Face New Tariffs of up to 38%, EC Says

Europe’s additional tariffs on imported EVs are expected to kick off talks with Beijing to avoid a major trade conflict, which could spread to other sectors


A BYD EV is seen outside the old parliament in Budapest. China's top EV-maker is setting up its first factory in the EU in Hungary (BYD image).

 

The European Commission said on Wednesday that Chinese carmakers will face new tariffs of up to 38% on electric vehicles imported to the region – to protect them from unfair competition.

The provisional duties – which will be added to the current 10% levy – range from 17.4% to 38.1% and will differ depending on how much carmakers cooperate with the EU on its probe into state subsidies and other factors.

They will be imposed from July 4, 2024, the EU trade unit said, while it talks “with Chinese authorities and all parties” and finalizes its anti-subsidy investigation by November.

 

ALSO SEE: China Firms ‘Face More US Sanctions for Goods Going to Russia’

 

The news caused shares of Chinese carmakers to fall by 4-9% in Hong Kong on Wednesday, Morningstar analyst Vincent Sun said, although he felt the move was “modest” when compared to the US hike last month.

Some 13-million people work in the automotive sector in Europe, which is the world’s second biggest market for EVs after China. But the sudden influx of an increasing number of cheaply-priced EVs in recent years has cast a shadow over the market.

EU Commission Vice-President Margaritis Schinas said on Wednesday the unfair subsidies given to makers of Chinese EVs “is causing a threat of economic injury to EU battery-electric-vehicle producers.”

Over a third of all electric vehicles in the EU come from China. Imports of Chinese EVs were worth $11.5 billion in 2023, up from $1.6 billion in 2020, and generated a trade surplus of more than 100 billion euros ($107 billion).

“When our partners breach the rules, we will assert our rights,” Executive Vice-President Valdis Dombrovskis, who heads the EU executive’s trade unit, said in a statement.

“Today we have reached a milestone in our anti-subsidy investigation,” he said, adding that “this is based on clear evidence of our extensive investigation and in full respect of WTO rules.

“We will now engage with Chinese authorities and all parties with a view to finalising this investigation,” Dombrovskis said.

 

Provisional tariffs ‘to kickstart talks with China’

The trade unit said state-owned SAIC faces a duty of 38.1%, while Geely faces a 20% levy and BYD, which could begin making cars in Hungary next year, faces an import charge of 17.4%.

Western companies making electric vehicles in China, such as  Tesla, Dacia and BMW, will face a 21% duty.

The announcement of these provisional rates “is intended to kickstart negotiations with China,” according to a report by Euractiv, which said the final rates could change – or even be scrapped, depending on how negotiations play out over coming months.

A decision on countervailing duties will then be put to a vote by the Council – where only a “qualified” majority of member states, meaning at least 15 countries representing 65% of the total population, would be able to block it.

The European Commission has faced heavy lobbying from many sectors, because Beijing threatened to retaliate against the EU with measures against its agricultural or aviation sectors.

Carmakers within the bloc have also issued warnings that they could also be subject to aggressive countermeasures by Beijing.

Top executives at BMW, Mercedes and Volkswagen have warned against imposing import duties on vehicles from China, where HSBC estimates the German carmakers generate 20-23% of their global profits.

The bosses of these legacy carmakers said recently that stiffer tariffs might temporarily shrink or eliminate the cost advantage Chinese automakers gain from their supply chains. But it may not prevent the reckoning that China’s lower cost EVs will force on them.

Meanwhile, the market is evolving as European automakers team up with Chinese counterparts to bring EVs to market more cheaply and quickly. Chinese EV makers and suppliers are also starting to invest in European production, which would avoid tariffs.

 

Trade skirmish possible

Among EU governments, France says Europe needs to defend itself against China’s subsidized production, while German Chancellor Olaf Scholz has said he is not convinced of the need for tariffs.

The EU tariffs – much smaller than duties applied by the US in May – prompted stern words and threats of possible retaliation from Beijing.

Its Commerce Ministry warned that China will take all necessary measures to safeguard its rights and interests, while Foreign Ministry spokesman Lin Jian described the EC investigation as “typical protectionism.”

“We urge the EU to abide by its commitment to support free trade and oppose protectionism, and work with China to safeguard the overall situation of China-EU economic and trade cooperation,” he said.

Meanwhile, industry insiders have said a deal may be negotiated before the move is put to a vote in October as numerous Chinese carmakers have been looking to set up production bases in the bloc to avoid tariffs.

The tariffs are strongly backed by France and Spain, but opposed by Germany, Sweden and Hungary.

German automakers in particular are heavily dependent on sales in China – and thus fear retribution from Beijing – and European auto firms also import their own Chinese-made vehicles.

“If provoked, the reaction and repercussions could lead to a trade war which would be devastating for a region that is still heavily dependent on Chinese dominated supply chains in order to achieve its lofty climate goals,” Will Roberts, head of automotive research at Rho Motion, said.

China, which has rebuked the EU over its anti-subsidy investigation ever since it was announced late last year, has lobbied individual EU countries, but not fully spelt out what its response to tariffs will be.

Beijing has already launched an anti-dumping investigation into mostly French-made imports of brandy. It also passed a law in April to strengthen its ability to hit back should the United States or EU impose tariffs on exports from the world’s second largest economy.

The EU’s pre-disclosure notice comes a few weeks before the July 4 deadline for imposing provisional measures. They could though apply retroactively for the prior 90 days.

Interested parties will be given three working days to comment on the accuracy of the Commission’s calculations.

The investigation will continue until late October, when a decision on whether to impose definitive duties, typically for five years, will be taken. Proposed duties would apply unless EU governments overwhelmingly oppose them.

That leaves nearly four months for a potential deal to be struck between Brussels and Beijing. Chinese executives hope such talks will soften the blow.

Every additional 10% on top of the existing 10% levy would cost EU importers of Chinese EVs about $1 billion, based on 2023 trade data, and would be another blow for a sector struggling with slowing demand and falling prices at home. 

 

  • Jim Pollard with Reuters

 

NOTE: The text of this report was rewritten after the EU revealed details of its provisional EV tariffs on June 12, 2024.

 

ALSO SEE:

As EU Eyes Tariffs, European States Chase China EV Factories

Stellantis CEO Calls China EV Tariffs a ‘Trap’. He May Be Right

Biden Ramps US Tariffs on Chinese EVs, Metals, PV Cells, Chips

EU Says China EVs Funded by Subsidies, Plans Retroactive Tariffs

EU Vows to Stem ‘Unfair Competition’ With New China Subsidy Probe

China’s Free Trade Olive Branch to EU Amid Subsidy Probes

BYD’s First Vehicle Charter Sets Sail Loaded With 5,000 EVs

Chinese Outbound EV Investment ‘Hit Record High in 2023’

 

Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.

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