German auto manufacturers such as Volkswagen and BMW have increasingly warned about the potential adverse effects of EU tariffs on the European auto industry’s competitiveness down the line, as well as their own operations in China.
German automobile manufacturer Volkswagen recently denounced the EU’s plans to implement import duties of up to 38% on Chinese electric vehicles, highlighting that they would have adverse effects on the European automotive industry.
The company emphasised that it would undermine the competitiveness of European auto manufacturers in the long run.
The EU announced these tariff increases back in June, citing concerns over Chinese electric vehicle makers receiving subsidies from the government, thus allowing them to sell their vehicles at unfairly low prices in the EU, compared to European automobile manufacturers.
This has been based on a nine-month investigation by the EU into Chinese subsidies, under the Foreign Subsidies Regulation (FSR).
These new tariffs include a 19.9% duty on Chinese EV maker Geely, a 17.4% tax on BYD, and another 37.6% tariff on SAIC. These are on top of the 10% tariffs that Chinese auto imports are already subject to and came into effect from 5 July onwards.
However, European, and especially German automakers such as BMW and Volkswagen have now hit back, worried that they may also face retaliatory tariffs from China on their extensive Chinese operations.
Currently, Western auto manufacturers in China, such as Tesla, Audi, BMW and Mercedes-Benz, enjoy benefits such as lower tax rates, grants, easier access to capital, reduced land costs and competitive prices for lithium batteries.
If these benefits dry up in the event of an escalating EU-China trade war, this may also compel these European companies to change their overall business models, especially if they are forced to look elsewhere to set up alternative production plants.
This could be an especially significant blow to European EV manufacturers, who have already seen demand back home flagging due to their higher prices and the allure of cheaper Chinese EVs.
Furthermore, the Chinese market is one of the biggest consumers of German combustion-engine vehicles. As such, the decline of Chinese government perks would also make it harder for European automakers to continue to take advantage of one of their key markets.
Both European automakers and environmental groups have also pointed out that tariffs on electric vehicles would be likely to further slow down the EU’s environmental and net-zero goals. This is because, with affordable Chinese EVs becoming more expensive and consumers still struggling with the increasing cost of living, less people may be likely to buy EVs at all.
Could the EU’s tariffs lead to an EU-China trade war?
There is also a very real possibility of China imposing retaliatory tariffs on other European sectors, and escalating current tensions into a full-blown trade war. China has already warned that it will impose extra duties on items such as pork, dairy and brandy imports from the EU.
Regarding the EU’s recent Foreign Subsidies Regulations (FSR) investigation, the China Chamber of Commerce to the EU (CCCEU) said in a statement, “The FSR has been weaponsised by the EU side and functions as a form of economic coercion.
The FSR is also allowed to investigate subsidies received by subsidiaries from parent companies in another country, usually the home country of the company. Regarding this, the CCCEU said, “This approach inherently disadvantages European subsidiaries of Chinese investors, depriving them of equal treatment compared to local bidding enterprises.
“Such discriminatory practices against Chinese companies not only dampen their enthusiasm for EU tender participation but also engender a lose-lose scenario for both sides, in terms of business collaboration, mergers and acquisitions and greenfield investments.
“We urge the EU to objectively recognise the contributions of Chinese companies to Europe’s green transition and social development and to ensure that Chinese enterprises are provided with a fair, just and non-discriminatory environment in which to operate.”
