Imposing tariffs on Chinese EVs: Boon or bane for EU?

The European Union said earlier this week that it would slap additional tariffs of up to 38.1 percent on Chinese electric cars from next month after an anti-subsidy probe. China promptly condemned the bloc's protectionist measures and warned that they would harm Europe's economic interests and impact bilateral trade relations.

So, is the EU actually gaining or losing from this move?

Impact on EU-China bilateral trade relations

Bilateral trade between these two economic powerhouses encompasses a wide range of goods and services beyond the automotive sector.

In 2023, the trade volume between the EU and China reached $783 billion, with China being the EU's largest source of imports and its third-largest export market.

By targeting Chinese EVs, the EU risks triggering retaliatory measures from China, which could affect other critical industries. This tit-for-tat escalation could lead to a reduction in trade volume, investment and collaborative projects, undermining the cooperative atmosphere that has been beneficial for both parties in the past.

Sacrificing European consumer interests

The success of Chinese EV brands in the European market is largely attributed to their affordability, competitive performance and comprehensive after-sales service.

The average price of a Chinese EV in Europe is around 22,000 euros ($23,514) compared to the European average of 34,000 euros, according to Fleet Europe.

Imposing anti-subsidy duties on these vehicles can be seen as sacrificing consumer interests for the sake of protecting domestic industries.

Impact on EU-China automotive supply chains

China and the EU are integral components of the global automotive supply chain. Automotive giants like Volkswagen, BMW and Daimler source significant components from China and have substantial investments in Chinese manufacturing.

An analysis report released by Germany's Kiel Institute for the World Economy indicates that if the EU imposes a 20 percent import tariff on electric vehicles produced in China, the number of Chinese electric vehicles imported into the EU would decrease by one-quarter, which is approximately 125,000 units. The associated trade loss would amount to nearly $4 billion for the EU, it estimated.

This could lead to higher production costs for European manufacturers who rely on Chinese parts and technology, thereby making European cars less competitive both domestically and globally.

The German Association of the Automotive Industry, backed by the likes of BMW, Mercedes-Benz and Volkswagen, has already made clear its opposition to additional tariffs, arguing these will not be "suitable for strengthening the competitiveness of the European automotive industry" and could trigger a "major trade conflict," according to Euro News. Hungary, which has attracted investments from BYD, is also considered a guaranteed opponent.

The EU's decision to impose tariffs on Chinese EVs presents a complex trade-off. While the move aims to protect European manufacturers from what the EU perceives as unfair competition due to Chinese government subsidies, the broader implications of this decision on the EU itself warrant careful consideration.