EU to Impose Duties of Up to 38.1% on Chinese-Made Electric Vehicles

The protectionist move comes after the EC recently completed an extensive and still-ongoing investigation into Chinese EV industry subsidies, and their potential impacts on EV suppliers from within Europe.

That investigation, which began in September 2023, was pitched as a battle to protect the EU market from unlawful “dumping” of inexpensive Chinese electric vehicles, at a time when EVs are being positioned as a major solution to lowering greenhouse gas emissions overall in the coming decade.

As she announced the study back then, European Commission President Ursula von der Leyen addressed members of the European Parliament during a regular session in Strasbourg, France, to explain how important the issue was.

“Global markets are now flooded with cheaper Chinese electric cars, and their price is kept artificially low by huge state subsidies,” she said. “This is distorting our market.”

“As we do not accept this distortion from the inside in our market, we do not accept this from the outside,” von der Leyen explained. “So, I can announce today that the commission is launching an anti-subsidy investigation into electric vehicles coming from China.”

“Europe is open to competition but not for a race to the bottom. We must defend ourselves against unfair practices,” she concluded.

At the time the EC began its work, the Chinese international EV onslaught was focused mostly on Asian, Southeast Asian, Mexico, and Latin America as a whole. At the same time, China was also positioning itself at the time for an intense EV competitive run in the United States and Europe, though only in the early stages.

For the U.S. part, China planned to sell via direct shipments as well as from joint venture suppliers of EVs manufactured in Mexico which would also be sold in the U.S.

In Europe, it was even better positioned.

Domestically, China’s SAIC already owns the MG automobile brand, despite that most consumers still think it is a British company and the marketing branding supports that. Another major Chinese EV supplier, Geeley, already owns Sweden’s Volvo automotive manufacturing as well as Polestar, that company’s high-end electric vehicle line. Both those companies will be manufacturing their EVs in Europe using a mix of Chinese-made subassemblies and materials sourced principally from within Europe.

The same Geeley which owns Volvo also began selling its Zeekr EV models into Europe earlier this year, as imported models. The largest EV manufacturer in the world, China’s BYD Auto, also began exporting its cars to Europe starting late last year. Its Seal and Dolphin models have already begun taking market share from local EV alternatives.

American EV makers had been selling strongly within the U.S. for many years. But despite a public push to promote EVs as integral to lowering greenhouse gas emissions, sales have been struggling of late thanks to a combination of quality problems at market leader Tesla, lack of available charging stations, and a still limited range of travel on a single charge. The Federal government responded by offering tax credits and cash outlay incentives for customers who were willing to buy EVs, including even used ones in some cases. Those incentives also required that a high percentage of the parts used to build the EVs they were buying had to be made in the United States.

The combined package of fiscal “lures” for U.S. consumers effectively eliminated Chinese alternatives from consideration in most cases. It also led to China filing charges against the U.S. with the World Trade Organization (WTO), arguing that the U.S. incentives constituted an illegal subsidy. It demanded the incentives be offered either to all vehicles, regardless of origin, or be removed.

Then last month the Biden administration announced it would be imposing a 100% tariff on all electric vehicles coming from China, effective this year. Puppet Joe Biden said as he announced the import fees that they were necessary because the People’s Republic of China (PRC) is subsidizing its EV manufacturers so they can dump their products on U.S. shores below cost.

China is filing claims against this action with the WTO as well.

Yesterday the European Commission, after having concluded its extensive investigation into Chinese subsidies of EVs to be imported into Europe, announced its own tariffs against Chinese EV makers.

The tariff structure is more complex and with lower rates than the U.S. 100% levy but is still considered more than enough to prevent Chinese electric vehicles from gaining any significant market share in Europe.

The base tariff to be added to EVs shipped from China into Europe will be up to 38.1%. That comes atop a 10% duty already charged for EV imports coming from anywhere outside the EU. The combination makes the maximum duty rate now 48.1% for EVs.

The maximum 38.1% new surcharge will apply to vehicles built by SAIC. Electric vehicles built by Geeley will see a 20% levy and those from BYD 17.4%. The difference in charges is reportedly related to how well the companies cooperated with the EU investigation into subsidies.

The new levies will go into effect on July 4, as provisional tariffs which will run for a month. The EC is asking for Beijing to respond formally to the subsidy investigation during that time. If it does not receive a sufficient response and corrective actions, the new tariffs will continue after the provisional period.

Imposing the tariffs in Europe will be a far trickier proposition than in the U.S. for multiple reasons.

For one, the market for imported EVs is exploding in the European Union. While the market value of those imports was a healthy but still relatively small $1.6 billion in 2020, in 2023 that had grown to $11.5 billion, over seven times what it was at the beginning of the decade.

Another is that even though most of those imports are from Chinese automakers, a substantial portion of those imports come from China-based joint ventures with western EV companies such as Tesla and Germany’s BMW. The levies will therefore hit hard on some companies who have chosen to invest in the China EV revolution as a key to their own European success.

A third problem is that Chinese EV makers build their cars so inexpensively that independent analysts believe they could – as a response to the levies -- lower their export prices enough to remain competitive even with the incremental maximum 38.1% tariffs imposed, and yet still earn a profit for their suppliers. The Rhodium Group, a business analysis organization, claims in a recent report that at least five of BYD’s top-selling EVs which are heading to Europe would still make a substantial profit at levies up to 30%. On the other hand, putting those same tariffs in place could, according to the recent Rhodium report, “wipe out the business model for foreign players such as BMW and Tesla, which are using China as a base for exporting to Europe.”

Another issue is the loophole left for Chinese EV makers with joint ventures they are setting up to manufacture their EVs in Europe. One example of that is Wuhu, Anhui, China based Chery Automobile Co. Ltd., which is currently building a plant based in Spain’s Catalonia region. Another is BYD, which is setting up production facilities in Hungary. They will make their vehicles using subsystems shipped from China but would not be subject to the incremental “whole car” import fees which the EC just announced.

A further concern is that China would retaliate against the EU should these tariffs make it past the provisional period ahead.

Volker Vissing, the German Transport Minister, warned yesterday after the EC plan was announced that the retaliation could broaden into a full-blown trade war, with serious consequences for his country and the EU overall.

"The European Commission's punitive tariffs hit German companies and their top products. Cars must become cheaper through more competition, open markets, and significantly better business conditions in the EU, not through trade war and market isolation," Vissing said in a statement released on the social media platform X yesterday.

In response to the tariff threat, the Chinese Commerce Minister declared its “shock, grave disappointment and deep dissatisfaction with this protectionist measure by the [European Commission].” While it avoided issuing any counter-tariff threats of its own, it added that it would “resolutely take all necessary measures to safeguard the legitimate rights of Chinese business.”