Escalating EU-China Trade Tensions: New Tariffs on Electric Cars and Looming Trade War

EU Increases Import Tariffs on Chinese Electric Cars

The EU has recently increased import tariffs on electric cars made in China, citing an attempt to protect its manufacturers against unfair competition. This was one month after the US raised tariffs for such vehicles.

Growing Trade Tensions with China

These new EU tariffs are a fresh front in the growing trade tensions with China out of concern that an oversupply of Chinese green technology goods is flooding the global market. China, due to its national policy to promote the manufacture of those vehicles, can produce electric cars cheaper than traditional automakers in Europe and in the US.

Technology Transfer and Excess Production

Foreign manufacturers were invited to set up factories in China, co-owned by Chinese companies, with the attendant technology transfer. China is producing more electric cars than its domestic market is able to absorb and is seeking foreign markets to avoid economic strain.

New Tariffs and Their Impact

The new duties—scaled between 17.4% and 38.1%—come on top of an already existing EU tariff of 10%. This follows an investigation into state support given by China for electric vehicle makers, where the European Commission concluded that the EV industry in China was subject to unfair subsidization.

Affected Electric Vehicle Manufacturers

Three of the largest makers of electric vehicles have been subject to differing duties; Tesla, which makes a significant proportion of its total output in China, may be allowed an individually determined tariff rate. The tariff increase illustrates the rather more protectionist policy that both Brussels and Washington are adopting concerning trade with China since both believe that low-priced imports from China are destroying jobs and strategically significant industries.

Potential for a Trade War

In particular, the new tariffs on electric cars made in China will likely trigger a formal period of often-dense negotiations between Beijing and Brussels in an attempt to deflect an injurious trade war. The retaliation by Beijing against those tariffs risks triggering a trade war with Europe that would hurt a region reliant heavily on Chinese-dominant supply chains for its climate goals.

Concerns of the European Automotive Industry

Europe's automotive industry, which employs nearly 13 million people, is increasingly concerned by the rising tide of imports of electric cars made in China. Chinese brands already have a 19% market share of electric vehicles sold in Europe.