The European Union said on Wednesday that it would impose tariffs of up to 38 percent on electric vehicles imported from China into the bloc, in what E.U. leaders called an effort to protect the region’s manufacturers from unfair competition.
The move, which comes a month after President Biden quadrupled U.S. tariffs on Chinese electric vehicles to 100 percent, opens another front in escalating trade tensions with China amid growing fears about a glut of Chinese green tech goods flooding global markets.
The actions by the European Union and the United States also reflect the challenges that traditional automakers in Europe and the United States face from up-and-coming Chinese companies founded with a focus on electric vehicles and much lower cost bases than rivals in the West.
But unlike U.S. carmakers, several of their European counterparts are deeply entwined in the Chinese market and their cars produced there will also be subject to the higher tariffs. They have criticized the European Union’s move to increase duties from 10 percent, fearing retaliation from China, as well as an increase in prices across the market and a drop in demand for battery-powered cars.
The increases announced on Wednesday, which are preliminary and will take effect on July 4, range from 17.4 percent to 38.1 percent for three of the leading Chinese manufacturers, including BYD, Geely and SAIC. The tariffs were calculated based on the level of cooperation with European officials, who have spent the past few months investigating the level of support from the Chinese government for these companies.
Other automakers producing electric vehicles in China, including European companies with factories or joint ventures there, face a tariff of 21 percent or 38.1 percent, the E.U. said. Those rates also depend on their cooperation with the investigation.
The European Union defended the action, saying in a statement that an investigation started Oct. 4 had found that the electric-vehicle supply chain in China “benefits heavily from unfair subsidies in China, and that the influx of subsidized Chinese imports at artificially low prices therefore presents a threat of clearly foreseeable and imminent injury to E.U. industry.”
The European Commission, the E.U.’s executive branch, opened the investigation to determine whether the Chinese government was effectively subsidizing its production of electric cars and sending them to Europe at prices that undercut European competitors.
The automotive sector provides nearly 13 million jobs across the 27-nation bloc, the world’s second-largest market for electric vehicles after China. Imports of electric cars from China last year reached $11.5 billion, up from $1.6 billion in 2020,.
About 37 percent of all electric vehicles imported to Europe come from China, including cars made by Tesla, BMW and Dacia, owned by Renault. Chinese brands account for 19 percent of the European market for E.Vs. Their numbers have been growing steadily, according to a study by Rhodium Group.
The E.U. left open the door for a possible agreement, saying that it had been in contact with Chinese authorities “to discuss these findings and explore possible ways to resolve the issues identified.”
Tesla, which produces its Model 3 and Model Y in Shanghai for the European market, petitioned for duties on its cars to be calculated individually, the E.U. said. Other companies seeking an individual review have nine months to submit their petition, it said.
Ursula von der Leyen, president of the European Commission, said last month that Europe was taking a “tailored approach” to calculating its increase in tariffs from the existing 10 percent, which would “correspond to the level of damage” caused. Tariffs for the other exporting companies will be based on the weighted average of the duty imposed on the three that were investigated.
Before the announcement, China had warned that it could retaliate by raising tariffs on gas-powered cars imported from Europe, agricultural and aviation goods. China already applies a 15 percent duty on all electric vehicles imported from Europe.
Those include cars made by BMW and Volkswagen, for example, which not only sell to China but also have large production facilities there.
The German carmakers fear that the tariffs will drive up prices in Europe and set off retaliation from the Chinese, ultimately hurting them in both markets. Chancellor Olaf Scholz of Germany criticized the increased duties last week during a visit to a plant in Rüsselsheim, which is owned by Stellantis’s Opel.
“Isolation and illegal customs barriers — that ultimately just makes everything more expensive, and everyone poorer,” Mr. Scholz said. “We do not close our markets to foreign companies, because we do not want that for our companies either.”
Economic experts had warned that increasing tariffs to as high as 20 percent could disrupt trade routes. The Kiel Institute for the World Economy calculated that such an increase would prevent $3.8 billion worth of electric vehicles from China would not enter Europe.
But other experts point out that Chinese manufacturers’ cost advantage over Europe’s legacy automakers in the production of components like electronics modules and battery cells means that Europe would need to impose duties of at least 50 percent to be effective.
Even if European automakers were able to plug that gap, a drop in the number of Chinese models will drive up the overall price of electric vehicles, given the higher labor and production costs, the institute said.
“It is by no means a foregone conclusion that European car manufacturers will fill the gap,” said Julian Hinz, a trade researcher at the institute. Another threat to European producers, he said, is the reality that Chinese manufacturers already have plans to expand production into Europe.
BYD, the leading Chinese automaker, has set its sights on becoming a top maker of electric vehicles in Europe by 2030. Late last year, it named Hungary as the site where it plans to build its first assembly plant in the E.U. The company said it was considering setting up a second factory elsewhere in Europe.
Chery, another Chinese manufacturer, announced last month that it would open a plant near Barcelona, as part of a joint venture with Spain’s EV Motors.
During a visit to Spain last week, China’s commerce minister, Wang Wentao, rejected Brussels’ charges of unfair competition and urged the European Union to support collaboration and trade, based on the rules of the World Trade Organization.
“We embrace healthy competition but stand firmly against any malicious attempts for suppression,” Mr. Wang said.
Other European countries are also eager for Chinese automakers to relocate to their home turf, with the idea they would create jobs and strengthen domestic supply chains.
President Emmanuel Macron of France has made a concerted effort to attract more battery production, including from Chinese companies, to a northern region where factory jobs have been in decline. Bruno LeMaire, France’s finance minister, has gone even further, declaring that the Chinese auto industry is “very welcome in France.”
With a view to the possibility of the Chinese firms expanding in their backyard, many European automakers point out that they are more concerned about increasing their competitiveness than they are about the tariffs.
“For me, tariffs are a short-term issue,” Arno Antlitz, chief operating officer at Volkswagen, said last month in a post on social media. “Chinese competitors are planning to produce their vehicles in Europe turning competition local and we need to prepare accordingly,” he said.