The European Union is preparing to inform China of its decision to impose tariffs on electric vehicle (EV) imports this week, potentially triggering a trade conflict with Beijing. A formal pre-disclosure of these tariffs might occur as soon as Wednesday, following an extensive investigation into China's state subsidies for its car manufacturing sector. The investigation is expected to conclude that significant support is still being directed towards the EV industry.
Chinese manufacturers are bracing for these new import duties. Experts predict that Beijing will respond with countermeasures affecting various EU exports, including cognac and dairy products. After meeting Chinese President Xi Jinping in Paris last month, European Commission President Ursula von der Leyen emphasised that the EU would protect its industries and jobs, stating that the global market cannot absorb China's surplus production.
The EU launched the anti-subsidy investigation last October amid concerns that China was flooding the EU market with cheaper EVs due to overcapacity and subdued domestic demand. This is one of over a dozen inquiries into Chinese state aid, including investigations into exports of solar panels, heat pumps, and wind turbines, which are believed to be undercutting EU prices by 50%.
Experts view the imposition of tariffs as a significant test of strength. They believe that President Xi Jinping is committed to dominating the global green tech sector, including EVs, solar panels, and electric vehicle batteries. If the EU investigation confirms that Chinese car manufacturers have gained a competitive advantage, Beijing will be formally notified and will have four weeks to contest the findings.
Any permanent application of tariffs must be approved by EU member states in November, more than a year after the investigation began. The tariff schedule would include three tiers: individual rates for sampled companies, an average tariff for companies that cooperated but were not fully investigated, and a residual tariff for non-cooperative companies.
The Rhodium Group consultancy anticipates that tariffs will range from 15% to 30%, which major conglomerates like BYD can absorb due to their cost advantages. However, tariffs in the 40-50% range might be necessary to deter Chinese EV exporters from the European market.
China denies subsidising its automotive sector, arguing that its exports support Western green targets. On a recent tour of Spain and Portugal, Chinese Commerce Minister Wang Wentao urged the EU to abandon protectionism and engage in dialogue and cooperation, dismissing the notion of overcapacity as a misperception.
Western governments insist that China must compete on a level playing field without dominating the future clean energy market. EU officials are determined to avoid repeating the mistakes made with Russian gas dependence, pursuing a strategy of "de-risking" to prevent over-reliance on China.
