To begin with, the EU and the PRC are powerful economic forces and have close ties, which obviously leads to conflicts of interest. Trade relations between the EU and China have long been dynamic and complex. The EU and China remain major trading partners.[1] European businesses continue to find attraction in China’s huge market potential.
One of the significant episodes of confrontation was the trade war over solar panels a decade ago. In the early 2010s, the EU turned against China, accusing it of dumping solar panels on the European market [2]. Former EU trade chief Karel De Gucht led the fight, advocating anti-dumping and anti-subsidy measures. The lack of consensus weakened the EU’s position, and by the time the measures were adopted, Europe’s industry had suffered significant damage.
Now the EU is facing a new problem, with electric cars. The fact is that the PRC is basically the leader in the production and sale of electric cars at the moment. First, China gained an advantage in the global race for lithium (necessary for the production of electric cars) after several mining companies built multi-million dollar lithium processing plants in Zimbabwe.[3] Secondly, China has become the largest car exporter in the world, overtaking Japan due to its global dominance in electric vehicle production, which follows from official data for 2023.[4] The global trend towards green energy has stimulated the hype around electric cars, as a result of which China is taking away a huge market share from gasoline model carmakers.
Of course, the above factors make it difficult for companies from other countries to compete with Chinese companies. However, there is another reason for the growing conflict between the EU and China. As Ursula von der Leyen stated: “Global markets are now overcrowded with cheaper Chinese electric cars. Their price is kept artificially low because of huge government subsidies. This is undermining our market.”[5] Because of these statements, the EU has put itself at risk of a trade war. The European Union is moving closer to imposing additional tariffs on Chinese electric cars, citing new evidence that the government in Beijing is providing illegal financial support to the industry.
The EU launched the investigation in October 2023, which means temporary tariffs should be imposed by July and final duties by November. In recent inspections of other sectors, such as electronic mobility aids and fiber optic cables, the EU has found subsidy margins ranging from 4% to 17%. The investigation is part of a wider EU effort to protect supply lines and move production closer to home, especially in key sectors such as semiconductors and pharmaceuticals. The announcement put an already fragile relationship with Beijing to the test, which subsequently launched its own anti-dumping investigation into brandy imported from the EU, in what was seen as “retaliation” against France, which supported the investigation into electric cars.[6]
The EU warned that manufacturers could suffer lower sales and production levels if Chinese electric car imports continue at current levels. Obviously, if Chinese cars increase their market share in the EU, German manufacturers will of course suffer the most. In 2023 through November, China has already exported about $12.7 billion worth of electric cars to the EU. As a result, the commission has instructed customs authorities to start registering imports of electric cars from China so that they can be subject to countervailing duties, decided at the end of the investigation, retroactively from that date to repair the damage already done.
The Chinese Chamber of Commerce to the EU has expressed its disappointment with the proposed customs registration requirement and has expressed concern about possible measures.[vii] According to the chamber of commerce, the recent surge in imports reflects growing demand in Europe. EU investigators have selected a number of Chinese brands that they believe best reflect the subsidies allegedly received by the sector. Those companies could face higher tariffs, while other exporters such as Tesla Inc. and other European companies could face the average level of those duties. The EU’s request does not name specific manufacturers, but would center on all Chinese manufacturers exporting to the EU, including Tesla and major Chinese brands such as BYD Co, SAIC Motor Corp. and Nio Inc.
Based on the above, it is clear that the EU intends to seriously compete for the markets and capabilities of its companies, and given the great potential of both sides in the automotive sector, the struggle will intensify. It is also worth mentioning once again that these trade tensions arise against the backdrop of the EU’s hardening economic stance towards China, which is increasingly wary of China’s use of large-scale state support in critical sectors, as well as general tensions between China and Western countries.
Looking at the likely next course of events, it is likely that the EU will fully impose duties to protect its manufacturers, this will shrink one of the last major markets for Chinese electric car exports and trigger a wave of “defensive” measures in countries such as the UK to protect their markets from flooding with cars diverted from the EU. At the same time, it will be a big loss for Beijing, because the European market is very large and solvent, but it will not be a critical problem for the Chinese electric car industry, because after the imposition of sanctions, China has already almost completely taken over the Russian car market,[viii] and is also actively expanding its influence in Asian and African countries.
[1] “EU trade relations with China”, European Commission, https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/china_en, (Date of Access: 14.03.2024).
[2] “EU reaches deal with China over solar-panel dispute”, France 24, https://www.france24.com/en/20130727-european-commission-deal-solar-panels-china-trade-dispute, (Date of Access: 27.07.2023).
[3] “China strengthens its grip on global lithium trade amid processing plant building boom in Zimbabwe”, SCMP, https://www.scmp.com/news/china/diplomacy/article/3254686/china-strengthens-its-grip-global-lithium-trade-amid-processing-plant-building-boom-zimbabwe, (Date of Access: 10.03.2024).
[4] “China seized Japan’s crown for vehicle exports in 2023”, The Japan Times, https://t.ly/GRV9B, (Date of Access: 14.03.2024).
[5] “EU risks trade war with China over electric vehicles”, Politico, https://www.politico.eu/article/eu-ursula-von-der-leyen-china-electric-cars-probe-trade-war/, (Date of Access: 13.09.2023).
[6] “EU Moves Toward Hitting China With Tariffs on Electric Vehicles”, Bloomberg, https://www.bloomberg.com/news/articles/2024-03-06/eu-moves-toward-hitting-china-with-tariffs-on-electric-vehicles?srnd=undefined, (Date of Access: 06.03.2024).
[vii] “EU’s mandate for customs registration of EV imports from China disappointing: chamber”, Global Times, https://www.globaltimes.cn/page/202403/1308350.shtml, (Date of Access: 07.03.2024).
[viii] “World Insights: With record sales, Chinese automakers win Russian market”, Xinhua, https://english.news.cn/20240122/e2bda940b0c14a8682903bc7162a0f88/c.html#:~:text=A%20recent%20study%20by%20the,doubling%20from%20the%20year%20before, (Date of Access: 22.01.2024).
