As China keeps growing as an electric vehicle (EV) production hub, with 25% of EVs in Europe this year expected to be made in China, the EU has launched an investigation into production practices in the country, specifically trying to find out if subsidies offered by the state put Chinese manufacturers at an unfair advantage in the European market.
The investigation was launched in October 2023, aiming to find whether battery electric vehicle (BEV) value chains in China benefit from illegal subsidisation and whether this subsidisation causes or threatens to cause economic injury to EU BEV producers.
“The electric vehicle sector holds huge potential for Europe’s future competitiveness and green industrial leadership. EU car manufacturers and related sectors are already investing and innovating to fully develop this potential. Wherever we find evidence that their efforts are being impeded by market distortions and unfair competition, we will act decisively”, European Commission President Ursula von der Leyen said at the time, ensuring the investigation would be “thorough, fair and fact-based”.
Preliminary conclusions of the investigation, revealed on 12 June, show that there are indeed unfair subsidies for EV producers in China, “causing a threat of economic injury to EU BEV producers”. Consequently, specific import tariffs have been set to start applying on 4 July, should no other resolution be found together with Chinese authorities.
Three producers would be put under very specific import tariffs: BYD at 17.4%, Geely at 20% and SAIC at 38.1%. Other producers that cooperated with the EU investigation would be subject to a weighted average duty of 21%, while those that did not cooperate will be subject to the maximum 38.1% residual duty.
“It is important to understand that these are not punitive tariffs”, German Vice Chancellor Robert Habeck commented on the findings of the investigation, explaining that the very specific and different tariffs to be applied show the thoroughness of the investigation and the EU’s willingness to work with Chinese authorities to find a compromise solution.
On 22 June, the Chinese Minister of Commerce, Wang Wentao, and Commission Executive Vice-President for Trade, Valdis Dombrovskis, agreed to hold talks on a middle ground resolution. “The two sides agreed to engage on the basis of facts and in full respect of WTO rules”, said Commission spokesperson Olof Gill. “The EU side emphasised that any negotiated outcome of the investigation must be effective in addressing the injurious subsidisation.”
With the tariffs set to take effect on 4 July, officials have a little over a week to discuss and find a solution. However, according to Reuters, analysts and European trade lobby groups have been highlighting that China would need to come to negotiations willing to make major concessions.
Whether such concessions will be made in the following week or not, remains to be seen, but, in the meantime, China is prepared to take retaliatory measures should the tariffs take effect next week. A Chinese commerce ministry spokesperson has warned of a possible “trade war” as “responsibility lies entirely with the European side” for escalading “trade frictions”.
China has already started an anti-dumping investigation into pork imports from the EU. Dairy products are also part of the investigation and other agricultural produce might be added. Moreover, according to Jacob Gunter, lead analyst at Berlin-based China studies institute MERICS, “It seems probable that Beijing will raise tariffs up to 25% for Europe-made cars with 2.5 or above litre engines.”
