By D.W.G. Kalani Tharanga, JadeTimes News
EU Tariffs on Chinese EVs, A Necessary Measure or a Double Edged Sword?
The European Union is poised to impose tariffs on Chinese electric vehicles (EVs) this week, responding to accusations that China is selling these cars at artificially low prices. The move comes amid concerns that inexpensive Chinese EVs, like the BYD Seagull, could disrupt the European market and threaten local manufacturers.
The BYD Seagull, an affordable and compact EV, starts at 69,800 yuan ($9,600; £7,500) in China. If introduced to Europe, its price would likely double due to safety regulations, but it would still be remarkably cheap by European standards. This potential influx of low cost Chinese EVs alarms European manufacturers, who fear losing market share to these competitively priced vehicles.
China's rapid growth in the EV sector is part of its "Made In China 2025" strategy, which has propelled companies like BYD to become global leaders in electric vehicle production. In 2022, China sold over eight million electric vehicles, accounting for 60% of the global total, according to the International Energy Agency. However, European and US policymakers worry that Chinese firms, benefitting from substantial domestic subsidies, can maintain low prices that Western companies cannot match. A UBS report highlighted that Chinese manufacturers like BYD produce cars at 25% lower costs than their international competitors.
In response, the Biden administration increased tariffs on Chinese EVs from 25% to 100%, effectively blocking their entry into the US market. The EU, while also concerned, is expected to adopt a more measured approach. The European Commission is likely to raise tariffs on Chinese EV imports to 20-25%, up from the standard 10% for third country imports. Matthias Schmidt of Schmidt Automotive Research believes this will level the playing field rather than stifle competition, unlike the US's more aggressive tariffs.
Potential Consequences of EU Tariffs
While the EU's tariffs aim to protect local industries, they could have unintended repercussions. For instance, European manufacturers like BMW, which produces the iX3 electric SUV in China for export to Europe, would face higher costs. Tesla, which exports cars from Shanghai to Europe, would also be impacted. These companies may need to absorb the additional costs or increase prices, potentially affecting their competitiveness.
Moreover, European automakers have significant investments in Chinese production facilities. Retaliatory tariffs from China could threaten these operations, further complicating the situation. Volkswagen Group's chief executive, Oliver Blume, has cautioned against tariffs, citing the risk of Chinese retaliation. Similarly, BMW's Oliver Zipse and Mercedes Benz's Ola Källenius have expressed concerns, with Källenius even suggesting that tariffs should be lowered to foster better competition.
Support for the EU's investigation and potential tariffs has mainly come from France. Yet, even French manufacturers, such as Stellantis' Carlos Tavares and Renault's Luca de Meo, are wary. Tavares warns of a "Darwinian" struggle with Chinese rivals, while de Meo advocates for a robust European industrial policy to enhance competitiveness without resorting to protectionism.
As the UK observes these developments, its Trade Remedies Authority is ready to investigate Chinese EVs if requested. However, no such request has been made, leaving the issue for the next government to address post election. While tariffs may offer European manufacturers and policymakers some respite, the broader consensus is clear, Europe must innovate and strengthen its automotive sector to remain competitive on the global stage.