Is a trade war revving up? On Friday, the European Union (EU) voted to adopt tariffs on China-made electric vehicles (EVs). Ten EU member states voted for the tariffs, while five voted against and twelve abstained, revealing deeper divisions and hesitancy within the bloc on this issue.
Friday’s vote came after a yearlong EU investigation into Chinese subsidies and unfair export dumping practices, and after the European Commission put forward provisional duties in July. Ranging from 7.8 percent to 35.3 percent, the new tariffs will come on top of a 10 percent levy already in place. China had made a diplomatic push against the measures in recent weeks, and it is expected to respond with its own levies now. Below, Atlantic Council experts answer five pressing questions about this highly charged issue.
1. Why is the European Commission pursuing these tariffs?
The Commission has pursued these tariffs in part to respond to the invasion of inexpensive Chinese EVs, which threatens the powerful EU car industry, and in part as a demonstration of its willingness to stand up to Beijing. While European Commission President Ursula von der Leyen has won this round, the vote has also demonstrated the divisions within the EU over its approach to China. And China has been smart in its approach to growing EU concerns about Chinese imports. It has accepted the need for some restrictions, such as minimum prices, and Chinese companies have moved some of their production to Europe, creating jobs and tax revenues. It would not be surprising if some companies do agree to minimum prices, and at any rate, the Rhodium Group predicts that these tariff levels will still leave Chinese EVs less expensive than European-made EVs.
—Frances Burwell is a distinguished fellow at the Atlantic Council’s Europe Center and a senior director at McLarty Associates.
2. What did the vote today reveal about where EU member states stand on this issue?
The vote clearly shows that when it comes to both the political will to confront Beijing over its malign practices and Europe’s economic exposure to the Chinese market, EU member states vary widely. As expected, Germany led a small camp of member states opposed to the tariffs, many of them with significant export dependencies in auto sector supply chains. But the twelve abstentions in the vote also show that the picture and posturing among member states is much more mixed.
The outcome of the vote still gives the European Commission’s geopolitical approach to China an important boost. As von der Leyen starts her second term, this is a clear enough signal that Beijing will have to take Brussels seriously—in the negotiations that will continue and in terms of the trajectory of Europe’s China policies—and that Beijing cannot expect success in peeling off member states to derail EU policy. Under von der Leyen’s leadership, the EU’s executive has driven a much more forward-leaning posture vis-à-vis China, even if it does not meet the standards of many China hawks in Washington. In her first term, the Commission developed an overarching vision built around de-risking and expanded a toolbox of economic security instruments for its approach to China. As von der Leyen starts her second term, the EV tariff issue brings her first term’s strategic shift on China to its first serious reality check.
We will now see whether the EU has the vision, the economic statecraft, and the political will and cohesion to see this policy shift through, both among member states and vis-à-vis the Commission.
—Jörn Fleck is the senior director of the Europe Center.
Today’s tariff decision is a legal victory for the Commission but a political victory (sort of) for China. The high number of abstentions—the measure was approved by a minority of member states—demonstrates the unwillingness of many national governments to stand up to China and its threats of retaliation. Under the legal rules of this decision, it would have taken a majority of the twenty-seven member states, representing 65 percent of the bloc’s population, to defeat the Commission’s proposed implementation of tariffs. By abstaining, national governments have allowed the measure to go forward, but they can also tell Beijing that they did not vote for it.
Today’s decision is not the end of the story. Even as the Commission puts the tariffs into effect on October 31, it has left the door open for a negotiated settlement. Chinese EV companies can propose a minimum price for their vehicles, and, if it is accepted, the tariffs will be removed. In the meantime, China has threatened retaliation against EU brandy, dairy, and pork. EU diplomats do not believe China has a case, but we can expect lengthy deliberations at the World Trade Organization.
—Frances Burwell
3. How does the EU’s approach compare with what the United States and other countries have implemented?
Not only are US (and Canadian) tariff rates substantially higher, but the United States is proposing to ban Chinese-made software in internet-connected vehicles. The EU—as well as other US allies, especially Australia—do not appear to be grappling with the real and uncomfortable tensions between decarbonization objectives on the one hand, and the security risks Chinese-linked connected vehicles pose on the other.
—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center.
A “who’s-got-the-bigger tariff” comparison with the United States or others is hardly useful or politically savvy to those interested in healthy transatlantic relations. It misses the important point that it is not just Washington that has domestic politics to take into account.
These EV tariffs and any potential Chinese retaliation will be much more impactful in Europe than in the United States—and not just to the European auto industry but also to other key industries and supply chains across the continent. By comparison, the US government’s decision to impose 100 percent tariffs on Chinese EVs comes at next to no economic cost given that Chinese EV imports account for a minuscule percentage of US imports overall. Compare that to the fact that roughly 25 percent of all EVs sold in the European Union this year will be Chinese, reflecting Europe’s greater openness and dependency on international trade overall. What’s more, the United States does not have to fear the double whammy under potential Chinese retaliation that especially German car producers and their exports face. Other than Tesla, which produces in China for that market anyway, US auto firms are not export competitive in China and have little-to-no export share to lose if Beijing chooses to retaliate.
—Jörn Fleck
4. What has China done to persuade EU member states on this issue?
After the European Commission launched its investigation a year ago, Beijing ramped up diplomatic pressure to block or mitigate potential tariffs. Its goal was—and remains—to divide the EU on this issue.
China’s pressure campaign included leader-level outreach from Chinese leader Xi Jinping, as well as talks led by China’s Ministry of Commerce and Ministry of Foreign Affairs. But the most public tactic Beijing wielded was threatening trade retaliation targeting specific EU member states in key export sectors, including pork, brandy, and dairy. At the same time, China also offered carrots in the form of investment opportunities, such as offering to establish electric vehicle manufacturing plants in parts of Europe or forging joint development agreements between European and Chinese automakers (see Spain, Hungary, Poland, and Italy).
Beijing’s pressure campaign—which included both carrots and sticks—produced mixed results. Hungarian Prime Minister Viktor Orbán and German Chancellor Olaf Scholz were the strongest EU voices opposing tariffs on the inside, effectively working in Beijing’s favor. In addition, the EU postponing the final vote from September 25 to October 4 gave China another opportunity to provide an attractive enough deal for the EU to mitigate the tariffs further. But the vote on October 4 did not go in Beijing’s favor.
How several of the EU member states voted is revealing. Spain, a key target of the pork tariffs, flipped its position right after Spanish Prime Minister Pedro Sánchez met with Xi in Beijing on September 9 and ultimately voted to abstain, a shift from its informal, nonbinding “yes” vote on July 15. Although Germany initially abstained from the July vote, Scholz wielded executive power to force a “no” vote for Germany. However, the rest of the EU members, with the exception of Slovenia—which shifted from its initial abstention in July to a “no” vote—did not alter their votes from July.
Most importantly, the European Commission has left the door open for continued negotiations with China even after today’s vote.
—Matt Geraci is an associate director of the Atlantic Council’s Global China Hub.
5. How will the policy play out from here?
Throughout this saga, the Commission has been at pains to present this process as a depoliticized, highly technical, and deliberate one. The vote does not put the tariffs into effect but hands the Commission further political leverage in a monthlong process of further negotiations with China. European capitals with core interests affected will no doubt continue to press their case at the Berlaymont. So will Beijing.
As von der Leyen starts her second term, the EV tariff issue puts her de-risking strategy to the first serious test as to who catches up with whom: key member states with a forward-leaning Commission, or a backpedaling president lining up with major EU capitals. The trendlines from today’s vote point to a hardening line vis-à-vis Beijing across the continent. Washington should be happy with that outcome.
—Jörn Fleck
Brussels’s EV policy seems likely to shift gears again (to use an internal combustion engine analogy that could be outdated in a couple of decades). A dramatic shift could come if former US President Donald Trump returns to the White House in January. Trump’s stated policy goal of placing 10 percent (possibly 20 percent) across-the-board tariffs, even on US allies, would spark trade tensions with the EU. Meanwhile, a policy of 60 percent tariffs on Chinese goods would bring the simmering trade war with Beijing to a boil. If Trump prevails in the election and promptly picks trade fights with both China and the EU, then Brussels might be more inclined to take a more accommodative stance toward Beijing regarding Chinese EVs and other matters.
At the same time, if Trump places a 60 percent tariff on US imports of Chinese goods, trade diversion would result, and the EU would likely face a flood of Chinese-made products (and not just for EVs). In that case, Brussels might face domestic political pressure to contain shipments from China, possibly including EVs. Given the uncertainty of US policymaking under Trump 2.0, it is difficult to predict how other actors, including Brussels and Beijing, will adjust.
Independent of US domestic political dynamics, however, Chinese connected vehicles may pose security risks to the EU, necessitating a sea change in the bloc’s policy. Around 97 percent of all electric vehicles are internet-connected, and these connections could pose profound vulnerabilities. At a minimum, data collected from these vehicles could be used by Chinese car companies to entrench technical and competitive advantages. Chinese-made connected vehicles could also enable Chinese security services to collect data on sensitive installations and personnel, as well as real-time economic and mobility data. In a worst-case scenario, these vehicles could be vulnerable to hacking. What will Europe do if, say, in three years, its security organs discover evidence that Chinese security services have embedded back-door software vulnerabilities in millions of Chinese-linked electric vehicles?
In the first two decades of the century, Europe’s dependency on Russian natural gas ultimately ended in tears. We may look back at Brussels’s decision to allow large-scale Chinese imports of internet-connected vehicles as even more consequential for its security.
In sum, Brussels’s policy toward Chinese EVs could shift in the near term, either due to Trump’s return as US president, Beijing’s exploitation of EVs for security purposes, or both. The EU’s decision to impose a moderate level of tariffs on Chinese EVs suggests it wants to “stay in neutral,” but for how long can it sustain this posture?
—Joseph Webster
This decision is important for two reasons. First, the EU has launched similar investigations into Chinese wind turbines, and we may see others as the EU tries to address Chinese overcapacity in global technology markets. If the EU and China reach an accommodation on EVs, it may become a pattern that is repeated on other technologies.
Second, it demonstrates the sorry state of the indigenous European car industry, especially in Germany. Germany opposed the imposition of tariffs because it is very dependent on the Chinese auto market and fears retaliation. But that is a static market at best, given the rise of the Chinese car industry. Germany has also been slow to shift away from fossil-fuel vehicle production at home; indeed, Volkswagen just announced that it might close plants in Germany, resulting in significant layoffs. The Commission’s decision to put tariffs on Chinese EVs is unlikely to prevent further erosion of the EU car industry, and the opposition from European car companies only shows how far they have moved from their home base.
—Frances Burwell
Further reading
Wed, Jun 26, 2024
The EU’s new tariffs are just the start of the EV trade saga with China
New Atlanticist By Jacopo Pastorelli, James Batchik
New tariffs on Chinese-made electric vehicles signal greater alignment between Washington and Brussels on Beijing. But differences could widen over time.
Wed, Jun 12, 2024
Europe is gearing up to hit Chinese EVs with new tariffs. Here’s why.
New Atlanticist By
The European Commission just proposed new tariffs on China-made electric vehicles of up to 38 percent. Atlantic Council experts explain why—and what might happen next.
Thu, May 23, 2024
Biden’s electric vehicle tariff strategy needs a united front
Econographics By Sophia Busch, Josh Lipsky
President Biden has announced 100 percent tariffs on Chinese electric vehicles. The challenge is developing a united strategy with G7 allies.
Image: TIANJIN, CHINA - OCTOBER 3, 2024 - Visitors visit BYD's booth at the China (Tianjin) International Auto Show 2024 in Tianjin, China, October 3, 2024. Photo by CFOTO/Sipa USA.