EU’s Decision on Chinese EVs and Germany’s Response
Journalists inspect a BYD Atto 3 displayed during its launch event in Jakarta, Indonesia, Thursday, Jan. 18, 2024. China's top electric car maker BYD launched three electric vehicles, Atto 3, Seal and Dolphin into the Indonesian market Thursday, bolstering its presence in Southeast Asia's largest economy. (AP Photo/Achmad Ibrahim)
On Friday October 4, 2024, the European Union (EU) finished voting on the proposed tariffs on Chinese electric vehicles (EVs). While countries like Hungary and Germany vocally disagreed to this proposition, a majority of EU countries had already voted in favor of the tariffs. The tariffs are only the beginning of a potential long-lasting economic cold war between China and the West. The tariffs will last for up to five years, ranging from 7.8% for Tesla from the United States to 35.3% for Chinese manufacturers like SAIC. There have been discussions about raising the tariffs up to 45% on Chinese EV imports but was met with opposition from major car manufacturing countries like Germany.
The European Commission’s investigation found that Chinese EV manufacturers and makers were benefiting from significant subsidies, including loans from Chinese banks. Substantial subsidies enable Chinese manufacturers to offer lower prices, giving them a competitive edge in Europe. This creates an unfair advantage over local producers, leading the European Commission to consider imposing anti-subsidy tariffs.
European car manufacturers are also struggling to produce EVs at prices and quality that could compete with the subsidized Chinese EVs and US Teslas. The EU seeks to shield its domestic auto industry from cheaper Chinese imports, especially as European automakers transition from traditional combustion engines to EVs. Additionally, the EU aims to protect its strategic industries as Chinese companies increasingly penetrate high-tech and green technology sectors. The imposition of high tariffs is intended to safeguard market demand for European products.
Although a majority of European countries agree with the tariffs, countries like Germany, Slovakia, Malta, and Hungary all voted in opposition due to their trade relations with China. Germany fears retaliation from China in the automotive industry because they are highly reliant on the Chinese market. German automotive brands like BMW, Volkswagen, and Mercedes-Benz are all highly popular in China. Chinese customers represent a large share of their global revenues. For example, China accounted for nearly one third of BMW’s total sales.
By implementing tariffs on Chinese EVs, China could retaliate by increasing tariffs on European luxury cars as well, hurting German exports. As a huge player in the automotive industry, Germany cannot afford to lose so many demands in the world’s second-largest economy. As demand for European cars may potentially reduce, German policymakers are pressured by carmakers and companies to balance out the decisions to avoid a trade war.
Models pose near the BYD Qin L Dmi unveiled during Auto China 2024 held in Beijing, Thursday, April 25, 2024. China's largest EV maker, BYD has been expanding rapidly into overseas markets, launching its low-priced Dolphin Mini, sold as the Seagull in China, in Latin American markets this year. (AP Photo/Ng Han Guan)
While the EU takes measures to deal with the subsidized Chinese EVs, The United States is also grappling with China’s rise in global markets. The US has taken much stronger measures to protect and bolster the domestic EV industry. Policymakers in the US raised tariffs from the previous 25% to 100% in May 2024, successfully blocking many Chinese EV imports from entering the US market. This is only one attempt to combat concerns over national security and the dominance of Chinese technology in critical sectors such as lithium-ion batteries. The 100% tariff serves as a clear signal of the US’s intent to minimize China’s influence in the green technology sector.
The EU and the US’ response to subsidized Chinese EVs will only push China to diversify its markets and begin importing to other regions such as Mexico and Africa. Chinese automakers will ramp up investments elsewhere to avoid these high tariffs. As an “economic cold war” persists, these tariffs will only strain diplomatic relations between the regions. Furthermore, these decisions will complicate global efforts to transition to cleaner technologies, highlighting the tension between economic competition and environmental goals.
While the US and EU impose policies in their own interests, they must also consider their own climate change commitments and strive towards that common goal. As the tension between the East and the West continues, it raises the question: Will the pursuit of national interests and economic competition by the US and EU ultimately undermine their own commitments to climate change, reflecting a broader human sin that could potentially jeopardize global efforts to achieve a sustainable future?