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EU tariffs on Chinese cars have Europeans nervously anticipating China’s response

  • China has said it will take “all necessary measures to protect our legitimate rights and interests” in response to European tariffs on electric vehicles made in China.
  • China launched an anti-dumping investigation into European brandy exports in January.
  • The interim tariffs range from 17.4% to 38.1%, depending on the automaker, and are in addition to the existing 10% tariff on vehicles.

Now that Europe has announced tariffs on electric cars made in China, the continent is preparing to see if the other shoe drops.

Will China retaliate with tariffs on European cars, targeting German manufacturers like BMW and Mercedes? Would you impose tariffs on agricultural products, targeting Europe’s politically influential farmers? Or luxury goods from Italy and France?

Analysts warn that an escalating trade war could break out, raising prices for consumers and hurting exporters and their workers on both sides. They are both important markets for each other: China, a rising economy with more than a billion people, and Europe with its relatively well-off population of more than 400 million.

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“It’s a bit like watching a traffic accident in slow motion,” Jens Eskelund, president of the European Chamber of Commerce in China, said earlier this year. “The accident has not happened yet and… it is still possible to find an exit ramp. It is becoming urgent.”

The Chinese government has said it will take “all necessary measures to protect our legitimate rights and interests” in response to tariffs on electric vehicles, but has not specified what they might be.

China launched an anti-dumping investigation into European brandy exports in January, a warning shot aimed at French cognac. France supported the European Union investigation that resulted in the announcement of tariffs for electric vehicles on Wednesday.

Visitors take a look at the Chinese-made BYD ATTO 3 at the IAA motor show in Munich, Germany, Sept. 8, 2023. The Chinese government has said it will take “all necessary measures to protect our legitimate rights and interests” in response to tariffs on electric vehicles made in China, but has not specified what they might be. (AP Photo/Matthias Schrader, File)

The EU is also investigating subsidies given to Chinese wind and solar companies and whether China is unfairly restricting access to its medical device market, a long-standing complaint by European manufacturers.

The European Union said it had contacted China to discuss the findings of the investigation into electric vehicles and that tariffs would take effect on July 4 if the two sides fail to resolve the issue. The tariffs would be provisional and would end only after four months.

Chinese newspaper Global Times has reported that Chinese companies are planning to ask the government to launch an anti-dumping investigation into certain EU pork products and an investigation into subsidies for some dairy products.

The state newspaper also cited a leading Chinese auto industry expert who called for raising tariffs on imported vehicles with larger engines to reduce carbon emissions, a move that would hit high-end German exports of Mercedes and BMW.

Volkswagen expressed concern that EU tariffs on Chinese electric vehicles could result in an escalation of trade conflicts and said the European Union is promoting a continuing trend towards protectionism, nationalism and isolationism.

“The negative effects of this decision outweigh any potential benefits for the European and especially the German automobile industry,” VW said in a statement.

Research firm Sanford C. Bernstein said the impact on German manufacturers would be mitigated by the fact that most of their cars sold in China are made locally. Only 2% of Volkswagen’s sales in China are imports vulnerable to higher tariffs, along with 15% for BMW and 19% for Mercedes-Benz.

China could also impose retaliatory tariffs on French and Italian luxury goods, cosmetics, wine, chocolate or furniture, Gabriel Wildau, a China analyst at consulting firm Teneo, wrote in an analysis ahead of the announcement.

While Germany fears retaliation against its car and chemical manufacturers, France and Italy have been the main proponents within the EU of tariffs on electric vehicles, he wrote.

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It is unclear what impact the interim tariffs would have on electric vehicle sales in China. Some Chinese companies could still sell at a profit, even with tariffs of up to 30%.

The interim tariffs range from 17.4% to 38.1%, depending on the automaker, and are in addition to the existing 10% tariff on vehicles. The new tariffs would represent a serious market barrier for Chinese exports of electric vehicles, the China Chamber of Commerce told the EU.

Rhodium Group calculations found that five of the six models from BYD, China’s largest electric vehicle maker, would make a profit under a 30% tariff, while a Chinese-made Tesla Model 3 would sell at a loss.


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