Analysis-China Gears up to Make a Deal With Europe as EV Tariffs Loom

The European Commission's expected move to hike tariffs on Chinese electric vehicles is set to kick off a round of talks that Chinese executives hope will soften the blow for the world's biggest EV industry.

The provisional tariffs, expected to be announced by June 5, will be a sticker shock representing billions of dollars in new costs for Chinese electric car makers.

But both Europe and China have reasons for wanting to strike a deal.

China’s EV industry needs profitable exports to the world's third-largest economy to counter falling margins at home, while German automakers want access to China's auto market and EV partnerships to drive costs down.

Every additional 10% in European Union tariffs on top of the existing 10% levy would cost China's EV exporters about $1 billion based on 2023 trade data. That cost will grow this year as Chinese EV makers expand exports to Europe.

Past EU subsidy investigations on imports from China of other products have resulted in extra duties ranging from about 9% to 26% for companies cooperating with the investigation. Analysts see EV tariffs broadly in that range. The duties would be imposed from early July but could apply retroactively for the three prior months.

China has signalled it is readying alternatives for the bargaining ahead. The EU provisional duties could be challenged, or even dropped if a large enough share of EU governments oppose them after four months.

The China Chamber of Commerce to the EU, a trade group, said last week Beijing was considering hiking tariffs on large-engine car imports to 25%. China has also floated the idea of lowering tariffs on EU auto imports to 10% from 15%, two people with knowledge of the matter said.

The European Commission has warned BYD, SAIC and Geely they did not provide enough information in response to its investigation of subsidies. That could clear the way for higher tariffs on those companies, a reference that will be used to set levies for the rest of the industry in China.

The trade group said the investigation was flawed from the start and had demanded information Chinese automakers could not provide. That included details on suppliers, including CATL, who were not part of the investigation, one person with knowledge of the investigation said. CATL did not immediately respond to a request for comment.

In a statement to Reuters, the trade group said there could be an opening to negotiate. "The ball may be on the European side," it said.

Analysts expect both sides to look for a deal.

"I expect the Chinese side to, and we're already seeing this, use a combination of carrots and sticks to convince some key member states to push back against the Commission," said Noah Barkin, a Rhodium Group senior adviser.

Source: US News