Do punitive tariffs affect consumers?
China tariffs would make electric cars more expensive in the EU
10.06.2024, 14:29
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Because China favors its car manufacturers, the EU is deciding on punitive tariffs on imported electric cars. Even if these would be significantly lower than in the USA, economic experts fear that consumers will be burdened heavily.
An increase in tariffs on Chinese electric cars is expected in Brussels this week. The EU Commission is facing a difficult balancing act, as it wants to protect its own car industry from competition, but also avoid a trade war with Beijing.
The EU accuses Beijing of paying excessive subsidies to its car manufacturers and thus giving them a competitive advantage. Commission President Ursula von der Leyen therefore launched an investigation into the matter in September. The Commission has until July 4 to decide on the imposition of punitive tariffs. However, a decision was expected shortly after the EU parliamentary elections.
How high could the punitive tariffs be?
Observers assume that the Commission will initially increase the tariffs from the current 10 percent to 15 to 30 percent. The EU’s reaction is therefore likely to be much less drastic than that of the USA, where President Biden had already announced in mid-May, among other things, increases in the tariff rate for electric cars from 25 to 100 percent.
Commission President von der Leyen made it clear that the EU would react “much more specifically” than Washington. Specific tariffs are expected for the three Chinese suppliers under investigation: BYD, Saic and Geely, as well as a flat tariff for all other manufacturers that import from China. However, German car manufacturers such as Mercedes would also be subject to this tariff if they produce in China.
What consequences would the tariffs have?
Suppliers such as BYD are unlikely to disappear from the European market as a result, as Chinese car manufacturers sometimes sell their cars in Europe for twice as much as on the home market, according to a study by China experts at the Rhodium Group. “Even with a tariff rate of 30 percent, many Chinese electric models would still achieve a high profit margin in the EU,” the analysis states.
In fact, BMW and Tesla will be hit much harder, as they will have to pay customs on cars built in China and exported to Europe without Chinese state aid. The current business model could be destroyed by the tariffs. The researchers warn that it is already guaranteed that the prices of electric cars will rise.
What do experts, politicians and industry say?
The Association of the Automotive Industry (VDA) warns of an escalation of the trade conflict, which would particularly affect German manufacturers. Car expert Ferdinand Dudenhöffer predicts that electric cars produced in China – including VW and BMW models – will have a market share of 25 percent. However, the high tariffs would make the models noticeably more expensive for consumers.
Chancellor Olaf Scholz has repeatedly taken a stand against punitive tariffs, and has received support from Sweden, for example. France in particular, whose car manufacturers are less represented in China, is pushing for a tougher approach towards Beijing. In order to overturn tariffs set by the Commission, a majority of at least 15 member states, which together make up at least 65 percent of the EU population, would be needed.
Elvire Fabry, an expert on global trade policy at the Brussels Jacques Delors Institute, warned urgently against politicizing the tariff decision: It must remain “an economic question, not a political one.” The aim is not to seal off the European market, but to give European manufacturers a “breathing space.”
How did China react?
The Chinese Chamber of Commerce in Brussels has already accused the Commission of “politically motivated” the investigation into the car manufacturers. It is undesirable for the economy to accept a tit-for-tat approach. However, China will be “forced to take a series of retaliatory measures”.
Jacob Gunter, an economist at the Berlin Mercator Institute for China Studies, also expects a “pretty sharp reaction”. European punitive tariffs would be an “attack on one of the key industries in which China has caught up technologically and even taken the lead”, he explains. In economic relations with Beijing, “something of this magnitude has never happened before”.