EU hikes tariffs on Chinese EVs amid subsidy dispute

The European Union announced plans on Wednesday to increase tariffs on electric vehicles (EVs) imported from China, intensifying a trade dispute over Chinese government subsidies and the surge of green technology exports to the 27-nation bloc.

The European Commission, the EU’s executive arm, released preliminary findings from its investigation into Chinese EV subsidies, indicating that China’s battery electric vehicle sector benefits from unfair subsidies that harm EU competitors. In response, the EU plans to impose provisional tariffs of up to 38.1% on Chinese EVs, adding to the existing 10% duty on all imported EVs.

The commission specifically targeted three major Chinese EV manufacturers:

  • BYD: An additional duty of 17.4%
  • Geely: An additional 20%
  • SAIC: A significant 38.1%

Geely, which owns brands such as Polestar, Lotus, and Volvo, and SAIC, which owns MG, one of Europe’s top-selling EV brands, are notably affected. Other Chinese EV manufacturers would face at least a 21% duty. The EU has approached Chinese authorities for resolution, but if no agreement is reached, the tariffs will take effect on July 4.

The value of battery-powered cars imported to Europe soared from $1.6 billion in 2020 to $11.5 billion in 2023, primarily from Western automakers’ Chinese factories, including Tesla and BMW. EU officials argue that Chinese subsidies enable domestic automakers to undercut European brands, threatening local manufacturers and green tech industries. The proposed tariffs aim to counterbalance the unfair subsidies provided to Chinese carmakers.

The Biden administration plans to increase tariffs on Chinese EVs to 100% from the current 25%. While the U.S. imports few Chinese cars, the higher tariffs aim to protect domestic companies and jobs, unlike the EU, which relies on affordable EVs to meet its emission reduction targets.

Chinese automakers have achieved cost-efficient EV production due to intense domestic competition. For example, BYD’s Seal U Comfort model sells for €21,769 ($23,370) in China but €41,990 ($45,078) in Europe. Cheaper Chinese cars benefit consumers and challenge European manufacturers to innovate, but the EU’s main concern is the unfair advantage from subsidies.

China is expected to retaliate, possibly by imposing higher tariffs on European luxury cars, impacting brands like Porsche, Mercedes-Benz, and BMW. However, most of these brands’ sales in China come from locally manufactured cars, lessening the impact of potential tariffs.

Long-term, Chinese carmakers might circumvent tariffs by establishing production facilities in Europe, as seen with BYD’s plant in Hungary and Chery’s joint venture in Spain’s Catalonia region.

In summary, the EU’s tariff hike on Chinese EVs marks a significant escalation in a trade dispute over subsidies and market fairness, with broad implications for consumers, manufacturers, and international trade relations.

Photo: European Commission