EU, China may enter tariff war over EV subsidies

Wikimedia Commons/CC BY-SA 4.0 Author: N509FZ
Foton battery electric bus in Beijing, China.

The European Union is moving towards raising tariffs against Chinese electric vehicles companies, risking a possible tariff war that is bringing German carmakers on their toes.

The European Commission plans to set up provisional tariffs on import duties that will enter into effect on June 5. The new tariffs follow an investigation that started in October over possible market-distorting subsidies received by Chinese companies from the government. At the moment it is unclear how high the new tariffs will be. The EU bases its assessment on rules from the World Trade Organization (WTO), meaning that tariffs should be in the range of 15 to 30%.

BYD, SAIC and Geely have been warned about possible tariffs on their EU imports, according to Reuters, as they failed to provide enough information over their subsidies. Tariffs on them may help to quantify the future amount for other companies, including Tesla, currently the largest EV exporter from China.

The EU investigation and the possible introduction of new tariffs sparked a rebuttal from China. Lobbying group China Chamber of Commerce to the EU said that the investigation was flawed. Meanwhile China is considering opening a dialogue with EU authorities to avoid a tariff war. The new import tariffs are provisional and may be discussed or dropped altogether after four months in case there is enough opposition by member states.

In particular, Chinese authorities may receive support from Germany and its carmakers. During a state visit in China, German chancellor Olaf Scholz said that the EU should work having China lowering its tariffs rather than have trade disputes. He was accompanied during the visit by the CEOs of Mercedes-Benz and BMW, both also vocally against trade barriers with China.

German carmakers have become increasingly depended on the Chinese market. According to trade data, almost 29% of German cars were sold in China in 2023, making it BMW’s biggest single market and one of the most crucial for rivals Mercedes-Benz and Volkswagen. The carmakers are scared of potential Chinese retaliation, as the China Chamber of Commerce to the EU hinted in a tweet that China is considering a 25% tariff on imported cars with large engines.

Chinese carmakers have been growing sales and investments in Europe in recent years, as the EV market in China gets saturated and carmakers can sell their cars at higher prices in Europe. BYD is building its first EV plant in Hungary and it may open a second one, while SAIC is looking for a location for its first EV plant. Chery Auto will open its first European plant in Spain in partnership with local company EV Motors.

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