The European Union (EU) is at a pivotal moment in its trade relations with China, with a crucial vote on additional tariffs on Chinese-made electric vehicles (EVs) looming. This decision not only tests the bloc’s stance on trade protectionism but also signals the larger geopolitical implications of Europe’s increasingly fraught relationship with China. As Chinese EVs continue to flood global markets, driven by substantial state subsidies, Europe faces a dilemma that could reshape its industrial policies and influence its global economic standing.
Subsidies and Market Distortion
Chinese EV manufacturers, such as BYD, Geely, and SAIC, have benefited from a wide range of state-sponsored subsidies over the years, from raw material procurement to tax breaks. According to the European Commission’s findings, this government support has made Chinese EVs considerably cheaper in global markets, giving them an unfair advantage over European manufacturers. These subsidies, distributed across the entire supply chain, have distorted competition, leaving European companies at risk of being squeezed out of the burgeoning EV market. The Commission fears that without intervention, Europe could lose significant jobs in its automotive sector, which supports millions of workers.
This led to the proposal of additional import tariffs, which range from 7.8% to as high as 35.3% depending on the manufacturer’s cooperation with the Commission’s probe. Tesla, for instance, faces a 7.8% duty, while Chinese manufacturers like BYD and Geely are subject to higher rates.
Von der Leyen’s Tough Stance on China
At the heart of this decision is European Commission President Ursula von der Leyen’s broader China policy, which seeks to address long-standing trade imbalances and reduce Europe’s dependency on Chinese imports, especially in strategic sectors like EVs and green technologies. Von der Leyen has positioned China as a “systemic rival,” pushing for more robust trade defenses to counter what she describes as Beijing’s use of subsidies to dominate international markets.
In March 2023, von der Leyen delivered a landmark speech highlighting the need for Europe to rethink its trade relationship with China, particularly in light of the latter’s aggressive pursuit of global market share through state support. The EV tariffs are seen as a litmus test for this policy, representing a broader pushback against China’s dominance in key industries.
A Divided Europe:
The upcoming vote has exposed deep divisions within the EU. France and Italy, with their strong automotive sectors, have firmly supported the tariffs, arguing that without intervention, Chinese EVs will dominate the European market. Paris and Rome fear the collapse of domestic manufacturers in the face of unfair competition.
On the other hand, Germany, an automotive powerhouse with deep commercial ties to China, has opposed the tariffs. Chancellor Olaf Scholz and Economy Minister Robert Habeck have expressed concerns that the tariffs could provoke retaliatory measures from Beijing, which would hurt the German car industry. The Chinese market is crucial for German premium car manufacturers like Mercedes-Benz and Porsche, which sell significant volumes of high-end vehicles in China. Scholz has warned that imposing tariffs could lead to a trade war, potentially harming Germany’s economic interests.
Other countries, like Spain and Hungary, remain undecided or opposed to the tariffs. Hungary has emerged as a key ally of China within the EU, consistently resisting measures perceived as antagonistic toward Beijing. Meanwhile, Spain, which initially supported the tariffs, has recently reconsidered its position after high-level diplomatic exchanges with China.
Potential Outcomes and Implications
The vote will be conducted under the rules of qualified majority voting, meaning 15 member states representing at least 65% of the EU’s population must support the tariffs for them to be adopted. If a sufficient number of countries abstain or vote against the proposal, the decision will be deferred, leaving it to the European Commission to break the deadlock.
If the tariffs are approved, it will mark a significant escalation in EU-China trade tensions, potentially leading to a full-blown trade war. China has already signaled its displeasure, threatening retaliatory measures against key European industries such as dairy and automotive. Conversely, if the tariffs are rejected, China will likely view this as a major diplomatic victory, reinforcing its strategy of leveraging its economic ties to weaken opposition within the EU.
Regardless of the outcome, this vote has broader implications for the EU’s China policy. Von der Leyen’s leadership on the issue has been seen as a turning point in how the EU approaches China. Should the tariffs pass, von der Leyen will be emboldened to take a tougher stance on other trade issues with Beijing, including subsidies in other sectors like green hydrogen and solar panels. On the other hand, a defeat for the tariffs could weaken her position and signal that Europe’s commitment to a united front on trade is fragile.
EU’s decision
The EU’s decision on tariffs for Chinese EVs is not merely about protecting Europe’s automotive industry; it is a critical moment in the bloc’s evolving relationship with China. As Europe seeks to navigate its way between protecting domestic industries and maintaining stable trade relations with Beijing, the vote could either affirm von der Leyen’s vision of a tougher, more independent Europe or reveal the limits of Europe’s collective resolve. With significant economic, political, and strategic stakes, the outcome will shape EU-China relations for years to come.
References:
- Politico. (2024). EU presents China with clear way to avert EV duties — good luck with that.
- Politico. (2024). How Germany lost the battle to prevent tariffs on Chinese cars.
