The European Union started imposing higher duties on imports of electric vehicles from China after talks between Brussels and Beijing failed to find an amicable solution to their trade dispute that has divided Europe and prompted retaliation from Beijing.
Electric vehicles have become a major flashpoint in a broader trade standoff over the influence of Chinese government subsidies on European markets and Beijing’s burgeoning exports of green technology to the bloc.
"By adopting these proportionate and targeted measures after a rigorous investigation, we’re standing up for fair market practices and for the European industrial base," European Commission Executive Vice-President Valdis Dombrovskis said Tuesday.
"We welcome competition, including in the electric vehicle sector, but it must be underpinned by fairness and a level playing field," Dombrovskis said.
The duties would stay in force for five years unless an amicable solution is found.
According to the commission, which manages trade disputes on behalf of the 27 EU member countries, sales of Chinese-built electric cars jumped from 3.9% of the EV market in 2020 to 25% by September 2023, in part by unfairly undercutting EU industry prices.
Just over a year after launching its anti-subsidy probe, the European Commission will set out extra tariffs ranging from 7.8% for Tesla, 17% on cars made by BYD, 18.8% on those from Geely, to 35.3% for China's state-owned SAIC, on top of the EU's standard 10% car import duty.
Geely has brands including Polestar and Sweden’s Volvo, while SAIC owns Britain’s MG, one of Europe’s bestselling EV brands.
Other EV manufacturers in China, including Western companies such as Volkswagen and BMW, would be subject to duties of 20.7%. The commission has an "individually calculated" rate for Tesla of 7.8%.
Beijing on Wednesday objected to the measures as protectionist and unfair, saying it did not "agree with or accept" the tariffs and has filed a complaint under the World Trade Organization (WTO) dispute settlement mechanism.
"China will continue to take all necessary measures to resolutely safeguard the legitimate rights and interests of Chinese companies," China's Commerce Ministry said.
EU members divided
The EU’s retaliatory duties have been controversial, having run into opposition in Germany, which has Europe’s biggest economy and is home to major automakers, and Hungary amid fears of provoking China's ire and setting off a bitter trade war.
The head of Germany’s auto industry association, VDA, said the imposition of the tariffs is "a setback for free global trade and so for prosperity, the preservation of jobs and Europe’s growth." Hildegard Muller said the move increases the risk of a far-reaching trade conflict.
"The industry is not naive in dealing with China, but the challenges must be resolved in dialogue," Muller said in a statement.
Germany opposed tariffs in a vote this month in which 10 EU members backed them, five voted against and 12 abstained.
Volkswagen, which has been hit hard by rising competition in China, has previously said the tariffs would not improve the competitiveness of the European automotive industry.
The measures come as thousands of German industrial workers, including at the carmakers, strike for higher wages, with Volkswagen possibly about to announce shutting plants on home soil for the first time in its 87-year history.
Hungarian Prime Minister Viktor Orban said the EU was headed for an "economic cold war" with China.
On the other hand, France, which pushed for the investigation, welcomed the decision.
"The European Union is taking a crucial decision to protect and defend our trade interests, at a time when our car industry needs our support more than ever," French Finance Antoine Armand said in a statement.
France's PFA car association also welcomed duties, adding it backed free trade as long as it was fair.
The measures were published in the bloc's legal Official Journal late Tuesday, meaning duties enter into force as of midnight, said EU spokesperson Arianna Podesta.
The commission says China boosted its EU market share with the help of subsidies across the production chain. These ranged from cheap land for factories provided by local governments, to cut-price supplies of lithium and batteries from state-owned enterprises, to tax breaks and easy financing from state-controlled banks.
The rapid growth in China's market share has sparked concern in the EU that Chinese cars will eventually threaten the bloc’s ability to produce its own green technology to combat climate change. Business groups and unions also fear that the jobs of 2.5 million auto industry workers could be put in jeopardy, as well as those of 10.3 million more people whose employment depends indirectly on EV production.
Retaliatory moves
Talks continue between the EU and China and the duties can be lifted if they reach a satisfactory agreement, but officials on both sides have pointed to differences.
Discussions have been focused on minimum prices that would replace the duties and force carmakers in China to sell vehicles at a certain cost to offset subsidies.
Dombrovskis said the EU remains "open to a possible alternative solution that would be effective in addressing the problems identified and WTO-compatible."
"We also noticed that the EU side indicated it would continue to negotiate with China on price commitments," Chinese Commerce Ministry said, adding that Beijing hoped to find a "solution acceptable to both sides as soon as possible to avoid escalating trade friction."
The China Chamber of Commerce to the EU said it was profoundly disappointed by the "protectionist" and "arbitrary" EU measure and was disheartened by the lack of substantial progress in negotiations to find an alternative to tariffs.
It urged Brussels and Beijing "to accelerate talks on establishing minimum prices and, ultimately, to eliminate these tariffs."
The EU, however, faces China's retaliation. China already said on Oct. 8 it would impose provisional tariffs on brandy imported from the EU.
Beijing has also launched probes into EU subsidies of some dairy and pork products imported into China.
Trade tensions between China and the EU are not limited to electric cars, with Brussels also investigating Chinese subsidies for solar panels and wind turbines.
The EU is not alone in levying heavy tariffs on Chinese electric cars.
Canada and the United States have, in recent months, imposed much higher tariffs of 100% on Chinese electric car imports.
It remains to be seen what impact tariffs will have on consumer prices. Some producers may be able to absorb them at least partially.
In the first nine months of 2024, China's EV exports to the EU were down 7% from a year earlier, but they have surged by more than a third in August and September, ahead of the tariffs, data from the China Passenger Car Association show.