FRANKFURT, Germany (AP) — The European Union decided Wednesday to increase tariffs, or import taxes, on electric vehicles made in China. EVs are the latest flashpoint in a wider trade dispute over Chinese government subsidies and the Asian country’s growing exports of green technology to the 27-nation bloc.
Here are some basic facts about the EU’s planned tariffs:
What has the European Union done?
The European Commission, the EU’s executive branch, said preliminary results of its ongoing investigation into Chinese EV subsidies show that the country’s electric vehicle “value chain” is benefiting from “unfair subsidies” that are hurting EU rivals. It plans to impose preliminary tariffs of up to 38.1% on electric vehicles shipped from China. This is in addition to the 10% import duties on all imported electric vehicles.
Targeting three of the largest Chinese EV players in Europe, the commission said it would impose additional duties of 17.4% on BYD’s electric cars, 20% on Geely’s and 38.1% on vehicles exported by the Chinese state-owned company SAIC.
Geely owns a range of popular brands including Polestar, British sports car maker Lotus and Sweden’s Volvo, while SAIC owns Britain’s MG, one of Europe’s best-selling EV brands.
Other EV manufacturers in China would be subject to import duties of at least 21%.
The committee said it has contacted Chinese authorities to “explore possible ways to resolve the issues,” but if those talks do not lead to an effective solution, the tariffs will come into effect on July 4.
Why did the committee take action?
The value of battery-powered cars imported into Europe skyrocketed from $1.6 billion in 2020 to $11.5 billion last year, according to research firm Rhodium Group. Most of the imports come from Western car manufacturers with factories in China, including Tesla and BMW.
But EU officials complain that China’s homegrown carmakers are poised to gobble up market share by undercutting European car brands on price thanks to Beijing’s massive subsidies.
EU officials fear unfairly subsidized imports will hurt European manufacturers and the continent’s green technology industries. European countries also subsidize electric cars. The question in trade disputes is whether subsidies are fair and available to all car manufacturers, or distort the market in favor of one side.
The planned tariffs are intended to level the playing field by approximating the extent of excess or unfair subsidies available to Chinese automakers. The committee did not single out Western car brands, but mentioned that Tesla could face an “individually calculated” tariff if tariffs were finally imposed.
How do the EU tariffs compare to the tariffs announced by the US?
The Biden administration is increasing tariffs on Chinese electric vehicles from the current 25% to 100%. The US currently imports very few Chinese cars, but like the European Commission, the government is concerned that subsidies are hurting domestic businesses and costing jobs.
The US tariffs block virtually all Chinese imports of electric vehicles. In contrast, the European Union needs affordable electric cars from abroad to achieve its goals of cutting greenhouse gas emissions by 55% by 2030.
How cheap are Chinese EVs anyway?
Chinese automakers have learned to make electric vehicles cheaply amid fierce price competition at home in the world’s largest auto market. BYD’s Seal U Comfort model sells for the equivalent of 21,769 euros ($23,370) in China, but 41,990 euros ($45,078) in Europe, according to Rhodium Group figures. The base model of BYD’s compact Seagull, which arrives in Europe next year, will sell in China for the equivalent of around $10,000.
As long as a competitive business environment is fair, cheaper Chinese cars benefit consumers and push European carmakers to lower prices and improve their offerings, said Niclas Poitiers, a trade expert at the Bruegel think tank in Brussels. “They are very cost competitive and increase pressure on other manufacturers nipping at their heels,” he said.
It is the unfair access to subsidies that Europe objects to. “An EU green policy that would lead to the collapse of domestic manufacturers due to unfair competition would not be politically sustainable,” Poitiers said.
How is China supporting its electric car industry?
In China’s market socialist economy, state-owned enterprises play a leading role. The government also guides and supports private companies in achieving Beijing’s economic development goals.
For electric vehicles, this includes orders for government vehicles, low-interest loans from state-owned banks, cheap land for local government factories, tax breaks and subsidized raw materials and parts from state-owned enterprises.
The different forms of financial aid complicate the EU’s case, as it is difficult to collect data on some practices. The EU indicated that it had selected BYD, Geely and SAIC as a sample to calculate the duties. Other manufacturers in China who cooperated with the investigation but were not included in the sample will face additional tariffs of 21%, while those who did not cooperate will face a tariff of 38.1%, the commission said .
What does this mean for European drivers and car manufacturers?
Chinese cars are likely to cost more, easing pressure on European automakers to keep their prices low. But Chinese companies are able to make cars so cheaply that they may still be able to sell them at a profit, even with tariffs as high as 30%.
European automakers producing electric vehicles in China could face collateral damage. They receive some government support in China, but less than their Chinese competitors.
According to calculations by the Rhodium Group, five of BYD’s six models in Europe would still make a profit even at a 30% tariff. Meanwhile, a Chinese-made Tesla Model 3 would sell at a loss.
Tariffs at levels of 15 to 30% could “wipe out the business model of foreign players like BMW and Tesla, which use China as a base for their exports to Europe,” the Rhodium Group said in a report.
How is China likely to respond?
China will almost certainly retaliate and pressure European officials to negotiate. The Chinese Chamber of Commerce at the EU warned that Beijing could raise duties on cars with engines larger than 2.5 liters, a move that could impact German luxury car makers such as Volkswagen’s Porsche.
Beijing lashed out after the European Commission unveiled its plans. The higher tariffs are “a naked act of protectionism, which creates and escalates trade frictions and ‘destroys’ fair competition in the name of ‘ensuring fair competition,’” the Commerce Department said. It urged the EU to “immediately correct its wrongdoing” and said China would “resolutely take all necessary measures,” without elaborating.
Still, the impact may be smaller than feared, according to analysts at research firm Sanford C. Bernstein.
Mercedes-Benz, BMW and Volkswagen now make most of the cars they sell in China in factories there. Only 2% of Volkswagen’s sales in China consist of imports and are therefore vulnerable to higher tariffs; it is 15% for BMW and 19% for Mercedes-Benz.
European cars at risk of being hit by Chinese tariffs tend to be luxury vehicles that bring juicy profits, such as Mercedes’ S-Class vehicles and BMW’s X6 and X7. However, such cars target wealthy customers who could be inclined to pay higher prices “as long as their purchasing behavior is not considered unpatriotic,” the Bernstein analysts noted.
In the longer term, Chinese automakers could avoid tariffs by making cars in Europe. BYD is building a factory in Hungary, while Chery has a joint venture to build cars in the Spanish region of Catalonia.