EU targets Chinese electric vehicles with new tariffs

On July 5, the European Commission initiated provisional tariffs on Chinese electric vehicles (EVs), marking a significant escalation in its trade tensions with China.

The new tariffs, which vary by company, range from 17 per cent for BYD to 38 per cent for SAIC. These rates are determined based on the extent of subsidies the companies have received from the Chinese government and their cooperation with the EU’s ongoing investigation, Caliber.Az reports citing the foreign media.

The European Commission's decision to impose these additional levies, on top of the existing 10 per cent tariff on car imports, is justified by claims that Chinese automakers benefit from unfair advantages due to preferential treatment in their home market. This rationale is intended to comply with World Trade Organisation (WTO) rules, although it illustrates the delicate balance European officials must maintain. They seek to uphold a rules-based international trade order, from which Europe derives significant benefits, while avoiding being pressured into protectionism by more aggressive rivals.

The move has sparked controversy within the EU. German car manufacturers, concerned about potential Chinese retaliation, have voiced strong opposition. German Chancellor Olaf Scholz is reportedly advocating for a reciprocal tariff of 15 per cent on Chinese cars. Meanwhile, on July 10, China’s Ministry of Commerce announced an investigation into the EU's trade practices, signaling potential legal action at the WTO and possible retaliatory measures.

Cecilia Malmström, a former EU trade commissioner, predicts that negotiations may lead to reduced tariffs by autumn, though a complete removal of the levies seems unlikely. She suggests that China will not fully meet the Commission's demands, and European officials are keen to project a strong stance.

Further trade disputes are anticipated, and the EU is preparing to leverage new trade tools. One such tool is the “international-procurement instrument,” currently being used to investigate the Chinese market for medical devices. If negotiations over access for European firms fail, the EU may respond by excluding Chinese bidders from procurement tenders. The possibility of new tariffs could also arise if former President Donald Trump is re-elected and implements additional tariffs on imports, as he has proposed.

The EU remains committed to maintaining WTO compliance, recognising the institution's importance to its trade policies. This adherence contrasts with the more unilateral approaches of the US and China, both of which are increasingly dissatisfied with the WTO's rules-based framework. As Hosuk Lee-Makiyama of the European Centre for International Political Economy notes, countries like China, India, and Russia favor alternative trade systems over what they perceive as a compromised rules-based institution.

As tensions escalate, adhering to WTO principles is becoming increasingly challenging, particularly with massive economies operating under state capitalism. The EU’s meticulous approach, which even allows Chinese companies to contest the tariffs in European courts, underscores the complexities of managing global trade relations in the modern economic landscape. However, there are concerns that the new trade instruments could inadvertently become protectionist tools if applied excessively.