The Cost of Competition: EU’s Chinese EV Tariffs and What’s Next for Trade

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Since the beginning of the US-China trade war since 2017, tariffs are not uncommon in trade between the two countries. This was especially evident in the technology industry, with supply chain disruptions being noted due to the trade tensions between the US and China. Recently, the European Union (EU) has also joined this trend. Electric vehicles is one of the most important points of this shift.

On October 30, the EU announced that it will be going ahead with import tariffs on Chinese EVs. This means that imported EVs could have taxes up to 45% attached to them. These are due to remain in place for the next five years. This article will cover three main questions.

1. Why were the tariffs put in place?

2. How will they impact the global EV sector?

3. What are the greater geopolitical implications for EU-China relations (with a focus on Greece)?

Why were these tariffs put in place?

The core issue at the heart of these tariffs is Chinese government support for the EV industry. Known for its strong intervention in business, the Chinese government uses its socialist political economy to boost strategic sectors, including EV production. In practical terms, this involves substantial investments to support domestic companies. In the EV sector, some estimate that the government has invested over $60 billion between 2009 and 2017. At first, this may sound harmless, but it can be problematic when taken within the context of international business regulations. Excessive government support in domestic industries is an example of protectionism, which refers to policies that limit international trade in order to boost domestic industries. This is generally frowned upon by the international trade community, as it is contrary to the principles of free trade.

So, after a long investigation by the EU into Chinese EVs, the tariffs were put into place as a response to the undue state support that the sector receives in China.

How will they impact the global EV sector?

This needs to be considered within the context of the performance of EVs in Europe. European carmakers appear to be struggling in the EV market, and this is mostly due to the cost of batteries that power EVs in the EU. This, paired with consumer hesitation to switch to electric has meant that European carmakers are falling behind, while their Chinese competitors are getting ahead. The international dominance of Chinese manufacturers can be seen in Norway, where 94% of cars sold in October were fully electric and Chinese carmakers hold 11% of the marketshare. Chinese competition has allegedly already caused BMW's profits to plummet by 80%.

This could have several implications for the global EV sector. Firstly, given the relative affordability of Chinese EVs and the problems that its European counterparts are facing, EV prices in Europe will probably increase. On the bright side for the EU market, this might encourage European manufacturers to up their game within the region, whilst Chinese companies will likely branch out to other regions to fill the gap created in the EU. This also poses an opportunity for emerging EV markets outside China, which have been in the rise in recent times, particularly in Southeast Asia and Latin America.

In environmental terms, these tensions will likely bring a slowdown in the global transition to green cars. Cyprus has already seen the effects of this, with officials already anticipating a negative impact on electrification.

What are the greater geopolitical implications for EU-China relations?

This naturally puts a strain on EU-China relations. The EU appears to be taking a strong stance on the issue of decoupling. I have written all about decoupling and slowbalisation in a previous blog post, which you can read here. This decision also demonstrates a push towards higher security concerns in trade policies, with Chinese EVs seen as a threat to European manufacturing.

However, the EU and China, like the US and China, have been experiencing these issues for years. Yet, the EU is still highly dependent on China for imported goods. Similarly, China is still reliant on exporting to the US, demonstrating the challenges of decoupling. The EU has also been massively important for China in terms of gaining access to advanced technology. For example, in just 2021, German machinery manufacturers exported machinery and equipment valued at approximately $192 billion. So, whilst China is preparing for a WTO lawsuit against the EU, this is not something we have never seen before. Relations are certainly becoming more complex, but a complete decoupling would not be beneficial for either party involved.

The above could have significantly negative impacts on Sino-Greek relations. Greece has tried to maintain strong relations with China despite EU-China tensions. Its successful strategic partnership in Piraeus remains a priority, but Greece must adhere to EU regulations and policies. These new tariffs will make striking this balance more difficult. The Port of Piraeus, which is operated by COSCO, is a major entry point for Chinese EVs into Europe. This new development will likely reduce the amount of Chinese EVs coming into Europe through Piraeus. Greece will have to push against this, and seek additional areas of cooperation, whilst encouraging COSCO to diversify its cargo operations. Ultimately, the tariffs, as part of a wider strain on EU-China relations, create sensitive conditions that need to be navigated carefully in terms of Greece's relationship with China.