The EU hits China’s carmakers with hefty new tariffs

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The EU hits China’s carmakers with hefty new tariffs

The Economist | June 12, 2024

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On June 12th, after an eight-month probe, the EU’s executive arm accused China of unfairly subsidising its industry with tax breaks, cheap loans and the like. It fears that cut-price imports pose a “clearly foreseeable and imminent injury” to European carmakers. Provisional tariffs of between 26% and 48%, compared with 10% for other imported cars, will be imposed from July on Chinese EVs. The precise duty will depend on each firm’s willingness to assist the investigation.

In the short term, it is hard to sniff out a winner. Car buyers hoping to inhale the intoxicating new-car odour will certainly suffer if the prices of imported cars rise and competitive pressures on European firms ease. But Europe’s carmakers are not taking a victory lap, either. They did not ask for the probe. Now they fear retaliation from Beijing, which looks inevitable.

China has hinted at raising its tariffs on large-engine (in other words, German) vehicles from 15% to 25%. It could also make life harder for foreign carmakers in China with more onerous regulations and spread the net of tariffs wider to agricultural goods or aviation. In January it fired a warning shot at France by initiating an anti-dumping investigation of cognac and other European brandies.

Europe’s tariffs will hit not only Chinese firms. Foreign companies that make cars in China for export back to Europe will be subject to duties of 31% on average. Tesla, the American EV pioneer, is by far the most exposed. But Europe’s mass-market carmakers, which face the greatest threat from cheap Chinese electric runarounds, are also in the firing line. 

As for Chinese carmakers, higher duties may temporarily slow their progress and give the Europeans the opportunity to catch up by launching a new generation of more competitive vehicles. But the tariff barrier is unlikely to stop all the Chinese in their tracks. Having set prices in Europe a little lower than for competing European models, they have scope to cut. 

Indeed, in the long run the tariffs could even hasten China’s conquest of the European car market. To become significant forces on the continent, the Chinese companies were always going to have to produce their EVs locally. BYD, which aims to become the region’s top EV-maker by 2030, will build a factory in Hungary and is soon expected to announce another in Spain. Chery signed a deal in April also to make cars in Spain. Others are reportedly knocking on the door of big European contract manufacturers.

3 key takeaways from the article

1. On June 12th, after an eight-month probe, the EU’s executive arm accused China of unfairly subsidising its industry with tax breaks, cheap loans and the like. It fears that cut-price imports pose a “clearly foreseeable and imminent injury” to European carmakers.  Car buyers hoping to inhale the intoxicating new-car odour will certainly suffer if the prices of imported cars rise and competitive pressures on European firms ease. But Europe’s carmakers are not taking a victory lap, either. They did not ask for the probe.  And Europe’s tariffs will hit not only Chinese firms.
2. China has hinted at raising its tariffs on large-engine in other words, German vehicles. It could also make life harder for foreign carmakers in China with more onerous regulations and spread the net of tariffs wider to agricultural goods or aviation. 
3. As for Chinese carmakers, higher duties may temporarily slow their progress. In the long run the tariffs could even hasten China’s conquest of the European car market.

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Topics:  Electric Cars, Technology, China, EU, Competition, Anti-dumping Duties