EU Tariffs on Chinese EVs: Will they spark a trade war?

Fears of a possible trade war with China have been raised by the European Union’s recent decision to slap tariffs of up to 38% on Chinese electric vehicles (EVs).

This action, which was taken in response to a detailed inquiry and is intended to fight improper subsidies, is expected to have a major impact on the economy. Both China and the EU are preparing for potential retaliatory actions that might alter the dynamics of global trade if tensions increase.

The arguments

The situation brings attention to a larger problem of Chinese manufacturing overcapacity, which raises questions about the country’s supremacy in the global green technology and electric car markets.

The EU’s electric vehicle industry is shielded from subsidised competition, according to supporters, by the tariffs, which are required to level the playing field. A wider trade war that would hurt the EU economy could result from China’s possible retaliatory actions, critics have also warned.

Regarding the political dynamics inside the EU, there is also division: France and Spain favour the tariffs to defend their sectors, while Germany warns against the measure owing to possible economic impact.

Instead of taking unilateral action that would jeopardise partnerships, the EU intends to collaborate with its G7 allies or other international organisations to handle the problem collectively.

Regarding long-term ramifications, the tariffs are a reflection of larger geopolitical tensions and the competition for supremacy in developing green technology, which may influence trade agreements and diplomatic relations in the future.

The facts

Beijing has been notified by the EU of its intention to apply tariffs of up to 38% on Chinese imports of electric vehicles (EVs), which may result in yearly levies exceeding €2 billion and could spark a trade war.

Beginning early next month, the tariffs will vary from 17.4% to 38.1%, with non-participating corporations like SAIC suffering the highest rate and cooperating ones like Tesla facing 21%. This action comes after a nine-month inquiry by the EU, which discovered significant state subsidies in China’s battery electric vehicle (BEV) market, endangering the unfair competitiveness of EU firms.

The vice president of the EU, Margaritis Schinas, underlined the damage these subsidies pose to the economy. Under WTO norms, China has four weeks to challenge the EU’s conclusions. European automakers brace themselves for punitive moves from China that might have a major effect on EU industries—especially considering that in 2023, EU car exports to China will be valued at around €200 billion.

In the EU, the proportion of Chinese-made electric vehicles (EVs) increased from 2.9% in 2020 to 21.7% in 2023. At the moment, the EU levies a 10% tax on cars imported from outside the EU and expects Chinese automakers to cover the higher taxes. At the next G7 meeting in Italy, this problem is probably going to be a major talking point, as the EU wants coordinated solutions.