In its worst trade dispute to yet, the European Union is set to apply duties of up to 37.6% on Chinese-made electric car imports starting on Friday, according to EU officials. This move is certain to escalate tensions with Beijing.

The tariffs are only temporary for a period of four months, during which time the two sides are likely to have intense negotiations as Beijing threatens extensive retribution.

Provisional tariffs set by the European Commission, ranging from 17.4% to 37.6% without backdating, are intended to avert what its head, Ursula von der Leyen, has described as an impending flood of low-cost electric vehicles (EVs) constructed with government subsidies.

The prices are nearly identical to those released by the Commission on June 12 and are outlined in a 208-page document that was published on Thursday.

Following firms’ discovery of small computation mistakes in the first disclosure, the CEO made changes.

Beijing then said that in order to protect its interests, it will take “all necessary measures”.

Retaliatory levies on the export of goods like cognac or pork to China may be one of them.

According to EU Trade Commissioner Valdis Dombrovskis, China has no justification for retaliation.

In an interview, he stated, “Our goal is to… ensure fair competition and a level playing field.”

There are still over four months left in the EU anti-subsidy probe.

Ultimately, the Commission—the executive branch of the EU—may suggest final obligations, usually lasting five years, and EU members would vote on them.

Worth $350 million, the transaction includes 41% of the Italian airline.

“Those talks with China are ongoing and indeed should a mutually beneficial solution emerge, we can also find ways not to apply at the end of the day the tariffs,” Dombrovskis stated.

“But it is very clear this solution (would) need to solve that market distortion that we are currently having … and it needs to be market compliant.”

China’s commerce ministry announced on Thursday that there had been many rounds of technical discussions between the two parties over tariffs thus far.

“We hope that the European and Chinese sides will move in the same direction, show sincerity, and push forward with the consultation process as soon as possible,” He Yadong, a ministry spokesperson, said.

In terms of tariffs, the EU announced on Thursday that BYD will pay 17.4%, Geely 19.9%, and SAIC 37.6%. These are in addition to the 10% ordinary EU tariff on imports of automobiles.

American automakers Tesla and BMW are among the companies who will face 20.8% tariffs for cooperating with the anti-subsidy inquiry, while companies that did not would face a rate of 37.6%.

Chinese electric vehicle manufacturers will need to choose between raising their pricing to meet the additional billions of dollars in expenditures at European borders or absorbing the taxes.

According to Tu Le, the head of consultancy Sino Auto Insights, “Chinese automakers are desperate to expand their sales outside of China since the domestic price war is taking its toll.”

Opponents of the levies claim that higher EV prices for European customers will jeopardise the EU’s 2050 carbon neutrality objective.

Chinese companies MG and Nio (9866.HK) unveiled a new tab on Thursday, indicating that they may increase pricing in Europe later in the year. Last month, Tesla announced that it will be raising the price of the Model 3.

Despite the higher labour and manufacturing costs in Europe compared to China, the possibility of tariffs may encourage Chinese automakers to build in facilities there.

In an attempt to circumvent the levies, Xpeng (9868.HK), opens new tab, became the most recent EV manufacturer to contemplate establishing production in the area on Thursday.

Volkswagen, the largest automaker in Europe, quickly criticised Thursday’s move.

“The negative effects of this decision outweigh any benefits for the European and especially the German automotive industry,” a Volkswagen spokesperson said in a statement.

Executives in the auto sector have issued a warning against the tariffs because of concern for countermeasures that would hurt their vehicles’ ability to compete in China, where they are already finding it difficult to stay ahead of an increasing number of local rivals.

China accounted for one-third of German automakers’ sales last year.

According to Commission estimates, the proportion of the EU market held by Chinese brands has increased from less than 1% in 2019 to 8% and may reach 15% by 2025. Prices, it adds, are usually 20% less than those of vehicles built in the EU.

Policymakers in Europe are anxious to prevent a repetition of the solar panel debacle that occurred ten years ago, when the EU only partially intervened to restrict Chinese imports, leading to the bankruptcy of several European businesses.

Chinese EVs were the subject of an anti-subsidy probe by the EU last October.

In the upcoming weeks, an advisory vote on the matter will be held among EU members, marking the first formal test of support for the Commission’s case—the first trade case of its sort.

Members are unsure about whether to support the higher tariffs, despite the Commission starting its probe in the absence of an industry complaint. This underscores Brussels’ difficulty in garnering support for the issue.

The bulk of Chinese companies will only have a minor impact from the tariffs, according to the Chinese Passenger Car Association.

The tariffs are significantly less than the 100% Washington intends to impose on Chinese electric vehicle imports starting in August.

(Adapted from Investing.com)

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