The EU is expected to hit Chinese electric cars with tariffs
What impact have Chinese subsidies had on the pricing and competitiveness of their electric vehicles in the global market?
Chinese subsidies have had a significant impact on the pricing and competitiveness of their electric vehicles (EVs) in the global market. These subsidies have allowed Chinese EV manufacturers to lower their prices, making their vehicles more affordable and attractive to consumers. As a result, Chinese EV brands have been able to gain a foothold in international markets and compete with established automakers from Europe and the United States.
According to a report by the Swiss bank UBS, Chinese EV manufacturers, such as BYD, can produce cars at around 25% lower cost than their global competitors. This cost advantage is largely attributed to the hefty subsidies provided by the Chinese government for domestic EV production. These subsidies enable Chinese firms to keep their prices artificially low, which has led to an increase in their market share both domestically and internationally.
However, this has also raised concerns among policymakers in Europe and the United States, who believe that the subsidies give an unfair advantage to Chinese firms and threaten the competitiveness of their domestic industries. In response, the US has raised its tariff on imports of Chinese battery-powered cars from 25% to 100%, while the European Union is expected to raise duties on EVs imported from China to between 20 and 25%.
Despite these measures, some industry experts argue that tariffs are not the most effective solution and that European carmakers need to focus on adapting to the challenge from China by developing a strong industrial policy to promote the sector and compete on a global scale.
How does the EU's proposed tariff increase compare to the recent actions taken by the US against Chinese electric vehicles?
The European Union is expected to raise duties on electric vehicles (EVs) imported from China, likely increasing the tariffs from the standard level of 10% for third country imports to between 20 and 25%. This move comes as a response to concerns that Chinese imports, backed by state subsidies, are distorting the market and making it difficult for European car manufacturers to compete.
In comparison, the United States has taken more drastic measures. The Biden administration raised its tariff on imports of Chinese battery-powered cars from 25% to 100%. This increase is part of a broader package of measures targeting imports from China, which Beijing has condemned as "naked protectionism."
While both the EU and the US are trying to protect their domestic car industries from the competitive threat posed by Chinese EV manufacturers, the EU's proposed tariff increase is more moderate compared to the US's 100% tariff. The EU aims to level the playing field by addressing the 30% cost advantage Chinese manufacturers have, while the US is implementing more protectionist measures to shield its domestic market from Chinese imports.
What are the possible repercussions of the EU's tariff policy on the broader trade relations between Europe and China?
The possible repercussions of the EU's tariff policy on the broader trade relations between Europe and China are multifaceted.
Firstly, there is a risk of retaliation from China. As mentioned in the text, European carmakers have invested heavily in production in China in recent years, in partnership with local manufacturers, and still export high-value models to Chinese markets. If China wanted to retaliate by imposing its own hefty tariffs, these shipments could be targeted, potentially harming European automakers.
Secondly, the imposition of tariffs could affect European companies as well as helping them. The tariffs would not just affect Chinese brands. For example, BMW's iX3 electric SUV is built at a factory in Dadong and exported to Europe. The company also intends to import large quantities of Chinese-made electric Minis. Both models would be subject to the tariffs, leaving the manufacturer to absorb the extra cost, or raise prices. The US manufacturer Tesla would also be affected, as it builds cars in Shanghai for export to Europe.
Thirdly, the imposition of tariffs could potentially harm the competitiveness of the European automotive industry in the long run. Some industry leaders, such as the CEO of Mercedes-Benz, have argued that tariffs on Chinese EV imports should be lowered rather than raised, to encourage European companies to do a better job. They argue that protectionism could make the industry complacent and less competitive.
Finally, the imposition of tariffs could strain the broader political and economic relationship between Europe and China. China has already condemned the US's tariffs on Chinese goods as "naked protectionism". If the EU follows suit, it could lead to a deterioration in EU-China relations, potentially affecting other areas of cooperation.