The European Union is expected to hit Chinese electric cars with tariffs

With China accused of selling electric cars at artificially low prices, the European Union is widely expected to impose tariffs on it this week.

The BYD Seagull is a compact, affordable, and sleekly designed electric vehicle (EV). An urban runabout won’t break any speed records, but it won’t break the bank either.

In China, its price starts at 69,800 yuan ($9,600; £7,500). If it reaches Europe, it is expected to cost at least double that figure due to safety regulations. But that would still be, by electric car standards, very cheap.

For European manufacturers, this is a worrying prospect. They fear the Little Seagull could become an invasive species, one of a number of Chinese-made models poised to colonize their own markets at the expense of local vehicles.

China’s domestic automobile industry has witnessed rapid growth over the past two decades. Its development, along with the battery sector, was a key component of the “Made in China 2025” strategy, a ten-year industrial policy launched by the Communist Party in Beijing in 2015.

The result has been the rapid development of companies like BYD, which now competes with Tesla for the title of the world’s largest electric vehicle manufacturer. Established giants such as SAIC, owner of the MG brand, and Geely, owner of Volvo, have also become big players in the electric vehicle market.

But for policymakers in Europe and the United States this is a cause for concern. With Chinese brands having a lot of spare capacity and moving into international markets, they fear that their companies will not be able to compete. They claim that massive subsidies for domestic production allow Chinese companies to maintain prices at a level that other companies would struggle to match.

According to a report by Swiss bank UBS, published in September, the Chinese advantage is real. He suggested that BYD could produce the cars in 25% less cost One of the best global old car manufacturers.

BYD and other Chinese companies are “ready to conquer the global market with high-tech, low-cost electric vehicles for the masses,” she said.

Meanwhile, earlier this year, the American Manufacturing Alliance warned that the introduction of cheap Chinese cars could be a move “An extinction-level event” American automobile industry. She called for “concerned and concerted efforts to bring back those imports,” concluding that “there is no time to waste.”

Last month, the United States took decisive action. The Biden administration raised its tariffs on imports of Chinese battery-powered cars from 25% to 100%. Sales of Chinese-made electric vehicles in the United States are currently negligible; With the new definitions, they will likely stay that way.

The move was part of a broader package of measures targeting imports from China that Beijing condemned as “naked protectionism.”

At the same time, the United States supports its auto industry, through tax incentives that make it cheaper to buy domestically produced cars.

The European Union appears to be adopting a more moderate approach, despite the tough rhetoric.

In her State of the Union address in September last year, European Commission President Ursula von der Leyen announced an investigation into Chinese imports.

“Global markets are now flooded with cheaper Chinese electric cars,” she said.

“Their prices are kept artificially low by massive government subsidies. This distorts our market.”

The preliminary results of this investigation are now forthcoming.

The Commission is widely expected to temporarily raise duties on electric vehicles imported from China, from the standard level of 10% for third-country imports to between 20 and 25%.

According to Matthias Schmidt of Schmidt Automotive Research, this would be a more proportionate response than the US move.

“A 100% tariff is just pure protectionism, regressive, stifles innovation, and prevents a competitive consumer landscape,” he says.

“If the EU imposes tariffs of no more than 25%, it will be more about leveling the playing field, achieving the 30% cost advantage that Chinese manufacturers have.”

However, tariffs could hurt as well as help European companies.

First, these sanctions will not only affect Chinese brands. For example, the BMW iX3 electric SUV is manufactured at a factory in Dadong and exported to Europe. The company also intends to import large quantities of Chinese-made electric Minis.

Both models will be subject to tariffs, leaving the manufacturer to absorb the additional cost, or raise prices. US manufacturer Tesla will also be affected, as it manufactures cars in Shanghai for export to Europe.

Second, although European companies have invested heavily in production in China in recent years, in partnership with local manufacturers, a number of them still export high-value models to Chinese markets.

If China wants to retaliate by imposing its own steep tariffs, these shipments could be targeted.

No wonder, then, that executives at European automakers are distinctly lukewarm about the EU initiative.

Earlier this year, Volkswagen Group CEO Oliver Blume warned that imposing tariffs “could be dangerous”, due to the risk of retaliation.

Last month, BMW chief Oliver Zipse told investors: “You can shoot yourself in the foot very quickly” by getting involved in trade fights, adding: “We don’t think our industry needs to be protected.”

Ola Källenius, CEO of Mercedes-Benz, has gone further, publicly calling for tariffs on Chinese electric car imports to be reduced rather than increased, to encourage European companies to do better.

Support for achieving European Union came largely from France. However, even among French manufacturers, there is doubt about whether tariffs are the right approach.

Carlos Tavares, president of the Stellantis group that includes Peugeot, Citroen, Vauxhall/Opel and DS, described it as “a big trap for countries going down this path.”

He warned that European carmakers are locked in a “Darwinian” struggle with their Chinese rivals, something that is likely to have social consequences as they cut costs in an attempt to compete.

Meanwhile, Renault CEO Luca de Meo says: “We are not in favor of protectionism, but competition must be fair.”

He has called for a strong European industrial policy to boost the sector, inspired by policies launched by the United States and China – in an attempt to compete with both.

Meanwhile, the UK is looking on with interest. The head of the country’s trade watchdog, the Trade Remedies Authority, has previously made clear he would be willing to launch an investigation into Chinese electric vehicles, if ministers or industry wanted it.

It is understood that no such request has yet been made. Ultimately, as a deeply political issue, the next government will have to address it after the elections.

What higher tariffs may give Europe is more time for both automakers and policymakers to adapt to the challenge posed by China.

But many in the industry acknowledge that if Europe is to remain a major player in the global auto sector, it must do more than just erect barriers at home.