EU tariffs on Chinese EVs a protectionist act

It will slow down tech evolution, impact global trade in electric vehicles

Karachi: The European Union (EU) has clobbered China with hefty taxes in the electric vehicle (EV) sales battle. The move which came despite internal schisms reveals a deep-seated protectionist impulse that threatens to undermine cooperation between China and the EU.

Cheaper EVs and other products of China pose a serious threat to the EU and the US where Chinese-made EVs are gaining more popularity in comparison with costly European and American EVs. The EU has to take some strict initiatives to protect its struggling industry after a two-year tussle.

The 27-nation EU bloc has imposed duties to tackle the dominance of Chinese EVs that threatens industries of the EU and the US. The duties will likely come into force on October 31 and last at least five years.

Auto sector expert and dealer Mohammad Sabir Shaikh asserted that it is China which has brought about genuine regulations after conducting massive research and development (R&D) work in EVs as Chinese are now scientists instead of producers of replicas as practiced in the past.

Chinese products are cheaper because the country is capable of making mass production – earlier the West was capable of this [mass production] – and above all Chinese labour is less expensive than that of the West.

China has a huge industry and production capability. It has captured large domestic and international markets and is engaged in stiff competition with the EU and the rest of the world.

For the last 50 years, Europe, Japan, the US and Canada prevailed in global markets for fuel-driven vehicles. Now, China’s EVs and motorbikes are dominating the markets with exciting and durable features.

France24 television network quoted Beijing’s commerce ministry as saying that EV tariff parleys in Brussels have ended with major differences as Brussels decided to slap new tariffs on imports of Chinese-made electric cars.

Representatives from Beijing and the European bloc have held eight rounds of talks in Brussels since September 20.

“There are still major differences between the two sides,” a ministry statement said, adding that it has invited EU negotiators for further discussions.

The two sides are major economic partners, but have butted heads in recent months over Beijing’s generous subsidies for its domestic industries. Brussels argues that the support undermines the principle of free competition and helps drive down prices of Chinese exports, undercutting European competitors.

The EU voted on October 4 to ramp up tariffs on EVs to as high as 45% with the argument that Beijing doles out unfair and substantial subsidies to its carmakers. China has already dismissed that claim and has threatened to impose its own tariffs on European dairy, pork and automobile sectors.

What’s more, the Chinese government views these tariffs as a “naked protectionist act.” Beijing has consistently denied the existence of state subsidies, calling the findings of the EU investigation “artificially constructed and exaggerated.”

International trade expert and auto analyst Aadil Nakhoda said, “This will definitely impact the global trade in EVs as EU imports more than 50% of Chinese EVs supplied in the international market. It will increase the cost of Chinese EVs in the EU given that they are 30-40% cheaper than the European EVs.

“About 20% of the EVs in the EU are Chinese, which is also likely to have a significant impact in the distribution of shares as tariffs go up.”

The proposed duties of up to 45% will cost carmakers billions of extra dollars to bring cars into the bloc. It will create several disruptions given that the Chinese EVs are one of the cheapest without even considering the role of subsidies and support they get from the government.

This will also likely impact the rate at which technology evolution takes place as the largest and most efficient suppliers of EVs find immense restrictions in their most important market. It can slow down the progress seen in the sector over the years.

The European Commission said it would challenge China’s tax at the World Trade Organisation (WTO), calling it an “abuse” of trade defence measures.

There are a lot of retaliatory tariffs used which are common in trade wars. For instance, when the US put tariffs on Chinese imports, China retaliated by imposing tariffs on US agricultural imports.

EU exports of meat, cognac, etc are likely to be impacted as China retaliates in this case. The issue at WTO is that the parties have to prove that tariffs are a result of government interventions with unfair practices in the first place. Hence, retaliatory tariffs are hard to prove in dispute settlement courts.

Again, the EU is likely to state that China uses unfair government support to gain advantage. The issue for China is to prove that its EVs are cheap despite these government interventions.

Trade wars are never likely to be beneficial given that investments in exports can lead to more efficiency that improves the quality of products. However, Pakistan can benefit from this if high tariffs increase the surplus supply of EVs while China continues to offer subsidies to its producers, similar to solar cell manufacturers.