The Biden administration just raised U.S. tariffs on Chinese vehicles, but international coordination is critical to countering China’s overcapacity.
Blog Update, 8:29 a.m. ET on June 29: The European Commission announced on Wednesday that it has determined after an investigation that electric vehicles (EV) made in China benefit “from unfair subsidization, which is causing a threat of an economic injury” to EV makers in the European Union — and will issue provisional tariffs as a result.
The EU will place varying tariffs on different Chinese companies, with BYD facing a 17.5% rate, Geely (which produces Volvo) facing a 20% rate, and SAIC facing a 38.1% rate. Other EV makers in China that “cooperated in the investigation but have not been sampled” will be subject to a 21% tariff, while those that did not cooperate will be subject to a 38.1% tariff.
All the duties will be placed on top of the 10% tariff already levied on EV imports.
The Commission gave China’s government and Chinese companies a heads-up about the duties before they were announced, and “has reached out to Chinese authorities to discuss these findings and explore possible ways to resolve the issues identified in a WTO-compatible manner.”
Should those talks not yield results, the new tariffs are expected to go into place on July 4.
In its coverage of the tariff announcement on Wednesday, The New York Times noted it now opens up a “another front in escalating trade tensions with China amid growing fears about a glut of Chinese green tech goods flooding global markets.”
“The actions by the European Union and the United States also reflect the challenges that traditional automakers in Europe and the United States face from up-and-coming Chinese companies founded with a focus on electric vehicles and much lower cost bases than rivals in the West,” the NYT reported. “But unlike U.S. carmakers, several of their European counterparts are deeply entwined in the Chinese market and their cars produced there will also be subject to the higher tariffs. They have criticized the European Union’s move to increase duties from 10 percent, fearing retaliation from China, as well as an increase in prices across the market and a drop in demand for battery-powered cars.”
Read on for additional context about the ongoing fight to mitigate China’s massive auto overcapacity and why cooperation between the U.S. and EU is critical.
The European Union is expected to decide as soon as this week whether to place tariffs on imports of passenger vehicles from China, a significant move that will help in the larger effort to mitigate massive overcapacity in the auto sector.
We’ve been warning for months that allowing Chinese imports to penetrate the U.S. market will lead to an “extinction-level event” for the U.S. auto industry, as Chinese autos are priced absurdly low thanks to the heavy subsidization of China’s government. We aren’t the only ones sounding the alarm, and it appears the White House has taken notice — the Biden administration announced in May it will raise tariffs on Chinese auto imports to 100%.
Although Volvo is set to introduce one here this year tariffs have so far been enough to keep Chinese imports out of the U.S. market. But that hasn’t been the case in most places around the world. Chinese auto imports are flooding South America, Mexico, Southeast Asia, and Australia. Now Chinese automakers have their sights set on Europe, and it’s already causing plenty of problems.
Now the EU may be ready to fight back. The findings of a trade investigation launched last by the European Commission — the EU’s executive branch — are set to be revealed as soon as Wednesday, potentially leading to tariffs on Chinese auto imports.
The BBC reported that it “is widely expected that the Commission will provisionally raise duties on EVs imported from China, from the standard level of 10% for third country imports to between 20 and 25%.”
While those margins aren’t as high as the ones about to go into place in the United States, it does represent progress in a larger, global effort to counter China’s massive overcapacity. China produces far more vehicles than it needs, but as the Wall Street Journal reported, its government “continues to support companies such as Zhido and others, encouraging unprofitable carmakers to keep producing as officials try to boost economic growth, preserve jobs and expand China’s role in the global electric-vehicle business.”
Countries issuing individual tariffs are putting Band-aids on a much larger wound. They aren’t here yet, but American autoworkers are still competing with government-backed competition that is looking to dump into other countries’ markets. The only way China is likely to stop is if a coordinated response makes it unprofitable to keep doing it.
Given that the U.S. and EU are among the biggest markets in the world, both raising tariffs seems like a step forward in the overall effort to counter Chinese industrial overcapacity.
But even at this late hour, it isn’t a given that Europe will raise tariffs. Politico Pro reported Tuesday afternoon that Germany has launched an 11th hour bid to halt them, while France wants them raised.
“With a decision by the European Commission imminent, both Paris and Berlin have ramped up their lobbying efforts — with conflicting messages on just how tough Ursula von der Leyen’s executive should get on Beijing,” Politico reported. “The EU executive is expected to inform Chinese EV-makers on Wednesday of temporary duties resulting from its probe into unfair state subsidies. EU member countries would then vote this fall to confirm the duties — making it vital for von der Leyen to pitch them at a level that the bloc’s two heavyweights can live with.”
Driving Germany’s hesitance is likely the fact that its automakers have a heavy presence in China, as “BMW, Audi and Mercedes-Benz have sold 19.2 million cars in China, making up 30 to 40 percent of each automaker’s global sales,” according to Politico. But France is fighting for higher tariffs.
“Paris lobbied hard for the probe, which was announced by von der Leyen in her set-piece annual address last fall,” Politico reported. “And, despite Beijing’s threat to hit back at French cognac makers in an anti-dumping investigation, Paris wants much higher duties on Chinese EVs.”
We’ll keep a close eye on what the EU announces this week, and what happens in the coming months.