The European Commission is this week expected to disclose the tariffs it plans to impose on Chinese electric vehicles (EVs) due to what it says are excessive subsidies, a move likely to prompt stern words and possible retaliation from Beijing.
Less than a month after Washington quadrupled duties for Chinese EVs to 100%, Brussels will set almost certainly far lower tariffs for imports from Chinese makers such as BYD (002594.SZ), opens new tab and Geely (0175.HK), opens new tab as well as western producers such as Tesla (TSLA.O), opens new tab that export cars from China to Europe.
The move comes as European automakers are being challenged by an influx of lower-cost EVs from Chinese rivals. Still, there is virtually no support for tariffs from the continent's auto industry. German automakers in particular are heavily dependent on sales in China - and thus fear retribution from Beijing - and European auto firms also import their own Chinese-made vehicles.
But European Commission President Ursula von der Leyen has repeatedly said Europe needs to act to prevent China from flooding the bloc's market with subsidised EVs.
"If provoked, the reaction and repercussions could lead to a trade war which would be devastating for a region that is still heavily dependent on Chinese dominated supply chains in order to achieve its lofty climate goals," said Will Roberts, head of automotive research at Rho Motion.
China has rebuked the EU over the anti-subsidy investigation, urged cooperation and lobbied individual EU countries, but not fully spelt out what its response to tariffs would be. The fallout involves five domestic automakers, who are found to have submitted either flawed or manipulated data when applying to certify some vehicle models.
Beijing has already launched an anti-dumping investigation into mostly French-made imports of brandy. It also passed a law in April to strengthen its ability to hit back should the United States or EU impose tariffs on exports of the world's No. 2 economy. The EU's pre-disclosure notice comes a few weeks before the July 4 deadline for imposing provisional measures. They could though apply retroactively for the prior 90 days.
Interested parties will be given three working days to comment on the accuracy of the Commission's calculations. The investigation will continue until late October, when a decision on whether to impose definitive duties, typically for five years, will be taken.
Proposed duties would apply unless EU governments overwhelmingly oppose them. That leaves time for a potential deal to be struck between Brussels and Beijing. Chinese executives hope such talks will soften the blow. Analysts expect tariffs of between 10% and 25%.
Every additional 10% on top of the existing 10% levy would cost EU importers of Chinese EVs about $1 billion, based on 2023 trade data, another blow for a sector struggling with slowing demand and falling prices at home. That cost will grow this year as Chinese EV makers expand exports to Europe.
Imports of China-made EVs have been dominated by western carmakers Tesla, Renault's (RENA.PA), opens new tab Dacia and BMW (BMWG.DE), opens new tab but the Commission has forecast that Chinese brands' share of EVs sold in the EU has risen to 8% from below 1% in 2019 and could reach 15% in 2025. It says prices are typically 20% below those of EU-made models. Chinese models exported to Europe include BYD's Atto 3, SAIC's MG and Geely's Volvo.
