China and the European Union (EU) are inching towards a trade war after the two sides locked their horns in a battle over tariffs on Chinese electrical vehicles (EVs). Having failed to find a diplomatic solution, the European Commission (EC), which oversees the bloc's trade policy, on October 29 announced to impose duties on imports of unfairly subsidized battery electric vehicles from China for five years.
The EC Executive Vice-President Valdis Dombrovskis championed the EU “open, fair and rules-based trade,” insisting “By adopting these proportionate and targeted measures after a rigorous investigation, we’re standing up for fair market practices and for the European industrial base.”
But by barricading China’s green technology entrance into the EU through high tariffs, Brussels is threatening to obstruct its own economy, weaken its own fight against climate change and harm its own people.
That's because while these tariffs would shut out foreign competition in the EU, they will saddle the consumers with additional costs and undermine the bloc’s goal of becoming carbon neutral by 2050. Furthermore, they will provoke retaliation from Beijing that could deal a blow to the EU exporters to China, potentially complicating the bloc’s economic challenges.
China has already opened anti-subsidy investigations into the imports of the EU dairy and other products. In response, Brussels challenged the probe at the World Trade organization in September. This was for the first time that the EU had launched a consultation request at the initiation stage, indicating how quickly a trade war between Beijing and Brussels is simmering.
German Association of the Automotive Industry's President Hildegard Müller has already given a warning to the bloc, dubbing these tariffs “a step backwards for free global trade.” “The industry is not naive in dealing with China but the challenges must be resolved in dialogue,” She said adding “the countervailing tariffs increase the risk of a far-reaching trade conflict.”
The uneven duty rates such as 17%, 18.8%. 35.3% and 7.8% EVs from BYD, Geely, SAIC and Tesla respectively on top of the EU standard 10% import duty are considered “measured”; such analysis ignore the impacts of these measures on the battle against climate change and that they violate the very basic principles of free trade and speak volumes of the EU’s targeted treatment.
Duties on Chinese EVs have divided the European capitals. For instance, German Chancellor Olaf Scholz wanted to continue negotiations with China as five EU member states including the bloc’s largest economy reportedly voted against the measure with 12 abstentions, unveiling inside rifts over the tariffs on EVs from China.
20.7% tariffs on German auto giants BMW and Volkswagen, manufacturing EVs in China, would infuriate Berlin for it considers Beijing “most important” and “a key business partner for Germany and all of Europe.” It’s pertinent to note that despite geopolitical tensions, economic headwinds, pressure from the US to pare back investments in China and calls of de-risking from their leaders, German carmakers and other companies have been reluctant to de-risk from China and are investing heavily there.
The EC cited unfair state subsidies, which helped Chinese EV manufacturers to undercut rivals in the EU on price, as a reason for imposing heavy taxes on Chinese EVs. True, they have played an important role in China's EV development yet other factors such as fierce domestic competition and technological innovations over the years have also helped accelerate Chinese EV evolution. What's more, battery production in China is more integrated than the US and Europe, courtesy of its leading role in upstream stages of the supply chain.
Tesla’s Elon Musk observation earlier this year “the Chinese car companies are the most competitive car companies in the world” highlights why the EV manufacturers in China today are much more competitive than their competitors elsewhere. China has also set an ambitious target of having 45% new energy vehicles of all new auto sales by 2027. This also helped promote competition between domestic and foreign EV manufacturers in China as well as contributed to global environmental goals.
Seeing Beijing’s climate contributions through the geopolitical lens just cannot snatch away the credit from China of indigenously developing a robust EV industry and giving the world a hope to foster clean energy transition through wide EV adoption.
If geopolitics is to be accounted for, the EC ex-officio anti-subsidy investigation – initiated by the Commission itself rather than in response to industry complaints – too is a geopolitical move to buy time to improve Europe’s future competitiveness and assert its “green industrial leadership” even this agenda slows the pace of the EU green transition.
Data has shown that duties are unlikely to make a significant impact on the market share gains of Chinese EV makers in Europe. But what the EU tariffs could do is that they would stoke divisions within the bloc and handcuff its climate ambitions. The US and Canada’s sweeping tariffs on China’s electric cars too indeed would delay the global sustainable transition.
Climate change is a global challenge. It must not fall victim to anyone’s geopolitical ambitions. This cold war for green industrial leadership should be stopped immediately and focus should be given to dialogue and on exchanging experiences in developing green technologies if the world is to be secured from the unfathomable consequences of global warming, environmental degradation and greenhouse gas emissions.
That's because while these tariffs would shut out foreign competition in the EU, they will saddle the consumers with additional costs and undermine the bloc’s goal of becoming carbon neutral by 2050. Furthermore, they will provoke retaliation from Beijing that could deal a blow to the EU exporters to China, potentially complicating the bloc’s economic challenges.
China has already opened anti-subsidy investigations into the imports of the EU dairy and other products. In response, Brussels challenged the probe at the World Trade organization in September. This was for the first time that the EU had launched a consultation request at the initiation stage, indicating how quickly a trade war between Beijing and Brussels is simmering.
German Association of the Automotive Industry's President Hildegard Müller has already given a warning to the bloc, dubbing these tariffs “a step backwards for free global trade.” “The industry is not naive in dealing with China but the challenges must be resolved in dialogue,” She said adding “the countervailing tariffs increase the risk of a far-reaching trade conflict.”
The uneven duty rates such as 17%, 18.8%. 35.3% and 7.8% EVs from BYD, Geely, SAIC and Tesla respectively on top of the EU standard 10% import duty are considered “measured”; such analysis ignore the impacts of these measures on the battle against climate change and that they violate the very basic principles of free trade and speak volumes of the EU’s targeted treatment.
Duties on Chinese EVs have divided the European capitals. For instance, German Chancellor Olaf Scholz wanted to continue negotiations with China as five EU member states including the bloc’s largest economy reportedly voted against the measure with 12 abstentions, unveiling inside rifts over the tariffs on EVs from China.
20.7% tariffs on German auto giants BMW and Volkswagen, manufacturing EVs in China, would infuriate Berlin for it considers Beijing “most important” and “a key business partner for Germany and all of Europe.” It’s pertinent to note that despite geopolitical tensions, economic headwinds, pressure from the US to pare back investments in China and calls of de-risking from their leaders, German carmakers and other companies have been reluctant to de-risk from China and are investing heavily there.
The EC cited unfair state subsidies, which helped Chinese EV manufacturers to undercut rivals in the EU on price, as a reason for imposing heavy taxes on Chinese EVs. True, they have played an important role in China's EV development yet other factors such as fierce domestic competition and technological innovations over the years have also helped accelerate Chinese EV evolution. What's more, battery production in China is more integrated than the US and Europe, courtesy of its leading role in upstream stages of the supply chain.
Tesla’s Elon Musk observation earlier this year “the Chinese car companies are the most competitive car companies in the world” highlights why the EV manufacturers in China today are much more competitive than their competitors elsewhere. China has also set an ambitious target of having 45% new energy vehicles of all new auto sales by 2027. This also helped promote competition between domestic and foreign EV manufacturers in China as well as contributed to global environmental goals.
Seeing Beijing’s climate contributions through the geopolitical lens just cannot snatch away the credit from China of indigenously developing a robust EV industry and giving the world a hope to foster clean energy transition through wide EV adoption.
If geopolitics is to be accounted for, the EC ex-officio anti-subsidy investigation – initiated by the Commission itself rather than in response to industry complaints – too is a geopolitical move to buy time to improve Europe’s future competitiveness and assert its “green industrial leadership” even this agenda slows the pace of the EU green transition.
Data has shown that duties are unlikely to make a significant impact on the market share gains of Chinese EV makers in Europe. But what the EU tariffs could do is that they would stoke divisions within the bloc and handcuff its climate ambitions. The US and Canada’s sweeping tariffs on China’s electric cars too indeed would delay the global sustainable transition.
Climate change is a global challenge. It must not fall victim to anyone’s geopolitical ambitions. This cold war for green industrial leadership should be stopped immediately and focus should be given to dialogue and on exchanging experiences in developing green technologies if the world is to be secured from the unfathomable consequences of global warming, environmental degradation and greenhouse gas emissions.
*My article (unedited) that first appeared at "Express Tribune"