European Commission’s decision to hike tariffs on China-made vehicles could be costly

Electric vehicles (EVs) are the need of the hour due to their efficiency and environmental benefits, as well as vital for achieving carbon neutrality goals. So the European Commission’s controversial decision to hike tariffs on EVs made by China’s BYD, Geely, and SAIC to up to 38.1 percent, raises significant concerns as it disrupts the world’s transition to a net-zero economy.

It should be noted that this decision is going to be critical for the global economy. A recent study by the Kiel Institute for the World Economy in Germany said tariffs imposed on Chinese EVs would lead to a loss of around $3.8 billion in the bloc’s EV imports, or almost 25 percent of the current value of its trade.

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The European Commission’s act is aimed at protecting its industries from the rapid global growth of Chinese-made EVs. Not only is this a blatant instance of protectionism but it violates the rules of the World Trade Organization.

Europe’s automotive industry has expressed severe discontent with the tariff increases, arguing it could erode the competitiveness of EU enterprises in the EV sector globally.

The “unfair subsidy” narrative was considered an integral element in Ursula von der Leyen’s reelection campaign during the EU elections. Yet this move mirrors Washington’s strategy of “de-risking” and decoupling from Beijing, highlighting the growing instances of economic nationalism and isolation.

The exports between China and the EU account for over a third of world trade. The two economic powerhouses trade goods worth over $800 billion annually, underlining that the EU needs China for survival, both sides are dependent on one another, and the tariffs disrupt the vast cooperation on green means of transport.

Furthermore, an addition of 10 percent tariffs costs the EU importers around $1 billion which further highlights that the decision would have severe economic repercussions and disrupt the growth of a sector that is already struggling with falling prices and slowing demand.

As production, energy, and labor costs in Europe are higher than in China, the tariffs will only exacerbate these differences. The value of EU imports of Chinese EVs has increased significantly from $1.6 billion in 2020 to $11.5 billion in 2023. These tariffs are likely to impede the progress made in the transition to electric vehicles and disrupt the goal of achieving the reduction of greenhouse gas emissions by at least 55 percent by 2030, under the EU’s Green Deal.

The tariffs will certainly have an impact on the Chinese EV industry in terms of both profits earned and employment generated. But it would have an even worse impact on the EU as it would result in increasing the prices of the EVs because of which domestic automobile producers would face less competition and this would disrupt the transition from highly polluting automobiles that operate on fossil fuels to clean energy vehicles.

Simultaneously, the tariffs would open new markets for Chinese EV manufacturers as by shutting the Chinese EVs out of the EU markets, the demand for Chinese exports will increase elsewhere.

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Chinese firms have started picking up shares in countries with small domestic auto industries, such as Australia and New Zealand, which shows that the EU is the obvious loser in this case. Some experts argue that the decision to impose tariffs on foreign goods is an act of subsidies on domestic EV production because the EU is already burdened with a high level of debt.

However, Beijing’s willingness to resolve the issue through dialogue should not be taken as a sign of weakness — it has indicated that it is ready with retaliatory measures if the EU does not back down.

In summary, it is a good omen that both sides have agreed to resume talks to propose a solution to the tariffs problem and hammer out their differences, and it would be in the best interest of both parties that the tariffs are removed through constructive dialogue.

The author is president of The Society of International Relations & Law, TILS, and director of Pak-China Corridor of Knowledge, Pakistan. 

The views do not necessarily reflect those of China Daily.