Why world should fret over tariffs on Chinese EVs

BEIJING — The European Union's plan to impose additional duties on imports of Chinese electric vehicles, widely criticized as protectionist, will have major implications in multiple spheres.

The move will damage China-EU trade ties, aggravate the consumer burden in Europe, and dampen the global transition to a greener future. Moreover, it may even put the bloc's reputation for fair competition in danger.

Although Chinese-brand EVs account for just a small share of the EU's EV imports, the European Commission on June 12 unveiled provisional tariffs ranging from 17.4 percent to 38.1 percent for Chinese EV makers despite widespread market concerns and China's objections.

In a brief statement, the European Commission accused China of "unfair subsidization" in its EV value chain, but did not provide further information to explain the factual or legal bases for its tariff plan.

China expressed its disappointment and dissatisfaction, rebuking the action as "blatant protectionism" and asserting its right to file lawsuits with the World Trade Organization and take all necessary response measures. It urged the EU to stop moving in the wrong direction and resolve trade frictions through dialogue.

Like a double-edged sword, tariffs cut both ways, with governments, market players and relevant stakeholders voicing concerns over its potential implications that should necessitate second thoughts from the EU.

Ties damaged

The EU's tariff plan, aimed at depressing China's robust EV industry, will cause severe damage to trade ties between China and the EU, both each other's second-largest trading partners.

It could also lead to unwelcome consequences, including countermeasures from China. China's Ministry of Commerce has warned that the EU move could create and escalate trade frictions.

Various EU member states and European automakers have expressed their disapproval of trade barriers and the imposition of additional tariffs on Chinese EVs.

The National Development and Reform Commission, China's top economic regulator, said the EU auto industry is highly dependent on the international market, creating a trade surplus of nearly 100 billion euros ($107.2 billion) every year. China accounts for more than 30 percent of sales of European car brands such as Volkswagen, Audi, Mercedes-Benz and BMW, and more than 80 percent of China's fuel-powered cars with large-displacement engines are imported, with many coming from the EU.

"If the EU insists on going its own way, abusing protectionist measures and creating and escalating trade frictions, China will not sit idly by but will take all necessary measures to safeguard its legitimate rights and interests," the NDRC said in an article.

In response to a media inquiry about whether Chinese industries are lobbying the government to launch an anti-subsidy investigation into EU dairy products or an anti-dumping investigation into pork imports from the EU, MOC spokesperson He Yadong said, "If the conditions for filing a case are met, the investigation agency will start the filing procedure, and disclose and release announcements in accordance with the law."

Higher costs

Under a post from the European Commission on social media platform X about its planned tariff hike against Chinese EVs, commenters doubted the EU move.

"This will hardly improve the unfavorable price/performance ratio of European legacy automakers' EVs compared to the Chinese, Korean and American," commenter Armin Pfeiffer replied.

For consumers, product quality and affordability are important for spending decisions, and Chinese EVs can offer both. However, the planned increased duties will make it more difficult for European consumers to find good value for money.

A recent Reuters report said that every additional 10 percent on top of the existing 10 percent levy would cost EU importers of Chinese EVs about $1 billion, based on 2023 trade data.

The key to the rapid development of China's auto industry is in its opening-up and fair competition, rather than in subsidies. According to the NDRC, as the world's largest and most open auto market, China ensures fully that Chinese and foreign auto companies compete fairly on the same stage. By 2018, China's average tariff on complete vehicle imports was reduced to 13.8 percent, and its average tariff on imports of parts and components was just 6 percent.

Minister of Commerce Wang Wentao also pointed out that Chinese companies have made significant investments in research and development in the new energy and green transformation fields, and formed their cost advantages amid extremely fierce market competition relying on a fully developed overall supply chain.

Green blow

During the United Nations Climate Change Conference in December last year, negotiators in Dubai came together in a decision on the world's first global stock-take to scale up climate action before the end of the decade. The stock-take calls on COP28 parties to take action to achieve a tripled renewable energy capacity and doubled energy efficiency improvements by 2030.

As concerns over trade and industrial protectionism grow, an analysis from energy consultancy Wood Mackenzie earlier this year warned that if the world's markets are bent on rapidly ridding China-manufactured clean tech products from their market demand, it would result in a 20 percent increase in the costs in energy transition.

The global clean-tech industry has achieved unimaginable scale and cost reductions in just over a decade, with China's clean-tech industrial capacity expansion at the heart of the story, says the analysis. "Without China at the table, aggressive cost reductions we have become accustomed to are over."

Fair competition

Discrimination against Chinese EVs can be seen in the tariff plan statement, which singles out three major Chinese-brand EV makers — BYD, Geely and SAIC — for different levels of tariffs.

Yet at least 50 percent of the EVs Europe imports from China are from Western brands, according to the NDRC.

By the end of 2022, China's subsidies for new energy vehicle purchases had expired. But the EU and the United States are still implementing large purchase subsidies, and their levels of subsidies are significantly higher than those in China. Based on these facts, the planned tariff hike is clearly discriminatory, the NDRC said.

The West's unfair practices targeting Chinese EVs are an example of double standards, according to Ding Weishun, deputy director of the policy research department at the MOC.

"We believe these contradictory acts are a typical example of double standards, and will ultimately undermine global green and low-carbon development and the realization of the climate goals," he said.

Chinese foreign ministry spokesperson Lin Jian said that China always views its relations with the EU from a strategic and long-term perspective, and regards Europe as an important priority for China's major-country diplomacy.

China and the EU share extensive common interests and broad space for cooperation on green development, and have maintained good dialogue and cooperation in this regard, Lin said.