Protective tariffs that Europe is likely to impose on Chinese electric vehicles will no longer be able to stop it.
By October 1, Brussels must decide whether to maintain the high tariffs on Chinese electric vehicles that were introduced this summer to protect the European market. However, it seems that nothing can stop the revolution in the global automotive market.
Last week, China’s commerce minister, Wang Wentao, visited Brussels. He tried to persuade EU officials to lift high tariffs on Chinese electric vehicles. The details of the negotiations were not disclosed and the results remain unknown. After the talks with Valdis Dombrovskis, Vice President of the European Commission, China’s Ministry of Commerce stated that China intends to «defend the legitimate rights and interests of its national industries» if the EU does not lift the increased tariffs on electric vehicles imported from China. This suggests that Wang Wentao’s mission may not have been successful.
As is known, Brussels conducted an investigation that allegedly revealed that China’s auto industry benefits from non-market support from the Chinese government. Under this pretext, increased tariffs of up to 38% were imposed in July this year on electric vehicles imported from China into EU countries. Currently, this regime is in place on a trial basis until October 1, when Brussels must decide whether to continue or cancel this tariff measure. China rejects the EU’s claims, although Chinese automakers cooperated with European authorities during the investigation.
While in Brussels, the Chinese minister said that cooperation is crucial for the automotive industries of both China and the EU. He chaired a roundtable with Chinese and European manufacturers that brought together leaders from nearly 30 European and Chinese companies that produce electric vehicles, batteries and components, as well as industry associations. Cooperation in this sector is significant and tariffs also affect European companies. In Brussels, Wang Wentao pointed out that European companies have successfully operated in China and contributed to the development of the country’s automotive production chain. China has also offered European companies an open market and a fair competitive environment.
The official noted that the EU tariffs would not only hinder cooperation with China in the auto industry and undermine the confidence of Chinese companies to invest in Europe, but would also have a serious negative impact on global cooperation to combat climate change, causing significant damage to the multilateral trade order based on WTO rules.
Commenting on the EU’s anti-subsidy investigation into Chinese electric vehicles, Wang Wentao said Beijing would negotiate to the last moment. But what if no agreement is reached? Beijing has already launched its own investigations into European pork and dairy products. Two weeks earlier, Spanish Prime Minister Pedro Sánchez visited China to ask that tariffs not be imposed on Spanish beef, which is exported to China for $1.2 billion. The threat also looms over other agricultural products shipped from Europe to China. It is no secret that European agriculture is heavily subsidized and would not survive without it. This is not difficult to prove. But China is in no hurry to respond in kind to the EU, insisting instead on a free market without trade barriers and preferences, as well as fair competition. Beijing believes that its support for the auto industry is fully in line with WTO rules, and that imposing high tariffs is a protectionist move that violates WTO norms.
However, it appears that Brussels is not inclined to compromise, despite the concerns of some EU countries about China’s potential countermeasures. EU officials appear to be under pressure from Washington to stop China’s technological and trade expansion. There are also fears that cheap, high-tech electric vehicles from China will undermine European car giants’ attempts to produce something competitive in the field. The green transition becomes secondary when the survival of Mercedes and Citroën is at stake. Unfortunately, these new tariffs will only force Beijing to retaliate, but will not protect European manufacturers. Volkswagen has already warned that Brussels’ anti-dumping measures could backfire, jeopardizing the EU’s climate goals and hurting carmakers that import vehicles from China.
Anthony Sassine, Senior Investment Strategist at KraneShares, concludes: «Chinese manufacturers are so efficient, so far ahead, that I don’t think these tariff increases will have a significant impact on the prices of their products in Europe. They will remain more competitive than their European counterparts».
These concerns are not unfounded. In the first eight months of this year, China exported 6 million vehicles, firmly securing its position as the world’s top exporter, surpassing Japan and Germany, which have essentially ceded the Russian car market to their competitors without a fight. The average price of Chinese export cars is $19,000, less than half the average price of a new car in the U.S. and Europe. What can be done about this?
The explosive nature of China’s automotive expansion seems to have caught the Europeans, Japanese and Americans off guard. In Brazil, for example, the world’s sixth-largest auto market, Chinese automakers shipped 175,000 vehicles in the first half of this year, up 450 percent from the same period in 2023. China’s total global auto exports have grown exponentially since 2020, when they totaled just 1 million units. The sudden influx of Chinese cars is upending decades of stable market share and profits. Competitors seem unable to counter this, except by erecting trade barriers, which do not solve the problem. Automotive experts say China’s key advantages — its huge market size, rapid advances in technology and logistics, well-established supply chains, cheap credit and subsidies — are unmatched. In addition, Chinese manufacturers have learned to ship goods cheaply and quickly to anywhere in the world. Chinese auto giants BYD and SAIC even have their own ships to transport vehicles across oceans. China accounts for 76% of the world’s electric vehicle battery production.
All of this bears a striking resemblance to the rise of Japanese automakers, which once dominated global markets. According to Michael Dunne, founder of a consultancy specializing in electric and autonomous vehicles, China’s auto exports could reach 12 million units annually by 2028. This poses a direct threat to all the global automotive giants. The day is not far off when even conservative Japanese consumers may be forced to switch from Toyota and Honda to Geely and Hongqi. And no tariffs will be able to stop this shift.