EU takes measures against Chinese electric vehicles

The European Commission has announced provisional tariffs of up to 38% on electric vehicles (EVs) of Chinese origin. This decision follows an investigation into subsidies provided by the Chinese government to its EV manufacturers, which allegedly disrupt competition in the European market by lowering production costs significantly in China. Earlier, in May, the US imposed similar tariffs, raising their existing tariff from 25% to 100%.

Consequences for the EU market

The tariffs, which will come into effect at the beginning of July 2024, are intended to protect European manufacturers from dumped Chinese EVs and from the influx of these Chinese EVs initially intended for the US market. Dumping is considered an illegal practice under international trade law, where a product is sold in a foreign market at a lower price than in the domestic market. The strategic goal of the EU with this decision is to neutralise dumping and thereby protect the local production of EVs and related technologies, supporting its technological sovereignty.

Risk of retaliation and trade war

The tariffs pose a significant risk of escalating into a trade war with China. German automobile companies, in particular, which have a strong presence in China and various joint ventures with Chinese automakers, are exposed to potential retaliatory measures. This concern is shared by stakeholders in the EU, who fear negative consequences for the broader European economy.

Implications for the value chain 

While the US aims to decouple its economy from China, the EU's policy is geared to evaluating trade relations with China and mitigating risks of unfair competition and coercive trade practices. This has several implications for businesses in general. 

Consumer Preferences: Imposing tariffs on Chinese EVs may lead to shifts in consumer preferences, making European-made EVs at least as attractive in terms of price as the Chinese competition. Nevertheless, the arrival of Chinese brands cannot be completely stopped as long as they meet international and European standards and are imported in compliance with international trade law.

Diversification: These tariffs are just one step in an ongoing policy of “risk containment” with China. Belgian technology companies should at least consider evaluating their supply chains and, if necessary, diversifying to become less dependent on Chinese imports. This includes sourcing components and raw materials from alternative suppliers within the EU or other regions. Instead of having three different suppliers in China, it is worth considering having three suppliers in three different countries or regions.
Strategic Partnerships: Forming strategic partnerships with other European companies can improve market position and competitiveness. Joint ventures and alliances within the EU can facilitate technology sharing and the joint development of new products in a turbulent international trade climate. 

Involvement in Trade Policy: Active involvement in the development of EU trade policy can provide insight into regulatory changes and their potential implications. Companies should stay informed about ongoing negotiations and adjust their strategies accordingly. Agoria contributes to this exercise via its website, but members can also participate in the Agoria Trade Working Group to be regularly updated. Contact Kevin Verbelen for more information.

Call to action for governments

Given that the European elections have just taken place, these sanctions will need to be followed up by the next European Commission. The outgoing European Commission has worked hard on trade protection and industrial policy. These initiatives aim to reduce dependency on non-EU technologies and increase strategic autonomy, with a particular focus on semiconductors, digital technologies, and green energy solutions.

However, Agoria calls on future regional governments, the Belgian federal government, and the European Commission to work actively on opening other markets, such as with MERCOSUR, Mexico, Chile, Australia, India, Indonesia, and Thailand. Definitively approving CETA at the Belgian level also contributes to a trustworthy international trade environment for our companies. Negotiating trade agreements that offer preferential access to new markets can help diversify the supply and demand for our European technology companies, thereby increasing their competitiveness. Opening other markets is also crucial for reducing reliance on a single market. Expanding market access will ensure that technology companies in the EU can thrive in a turbulent global climate and can continue to innovate and grow.

Source: Agoria