Here is what you need to know about the curbs and what it means for the two economies.
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Chinese-made electric vehicles face additional EU import tariffs of up to 38%
Chinese-made electric vehicles face additional EU import tariffs of up to 38%
How and when will the EU’s extra tariffs on China’s EVs be applied?
The new tariffs will be added to the existing 10 per cent import duty on EVs imported by the EU from mainland China. The extra levies will only apply to pure-electric cars. Plug-in hybrid electric vehicles, fuel cell cars and components such as batteries are exempt from the punitive measures.
The provisional duties vary between 17.4 per cent and 38.1 per cent, depending on each carmaker’s level of cooperation with the European Commission’s anti-subsidy investigation launched last October.
“The tariffs themselves are much smaller in scope and magnitude than those levied by the US on Chinese EVs a month ago,” Moody’s said in its report released on Tuesday. “However, they will have larger knock-on effects, given the tighter interlinkages and larger trading volumes between the Chinese and EU economies.”
The duties will provisionally come into effect on July 4 unless the EU and China can reach an agreement to solve the problem. The final decision will be made in November after consultations between EU members and Chinese EV makers.
Members of the bloc do not have to vote on the punitive measures and some, including Hungary, Germany and Sweden, are opposed to the curbs. They would need the backing of at least 12 other members to veto the plan.
What do the tariffs mean for the Chinese carmakers?
Exports only accounted for 16 per cent of China’s total vehicle sales in 2023, and three quarters of those shipped abroad were petrol-driven, according to Chinese customs data and the China Association of Automobile Manufacturers.
Chinese EV exports will remain cost-effective despite the tariffs, and the electric car builders are grappling with intense competition at home which has forced prices down and squeezed profit margins, Moody’s said in the report.
“I am sure that Chinese manufacturers will only be successful in Europe if they produce there,” Volkswagen China’s chief executive, Ralf Brandsatter, wrote in a LinkedIn post last week. “They will then also have to work with European wages, energy prices, parts costs and trade unions. In this way, we not only create a level playing field but also greater prosperity for Europe.”
What do the tariffs mean for European carmakers?
The tariffs will probably give European carmakers a slight advantage in the near term as the price gap between locally-built EVs and Chinese cars will narrow, especially for the likes of Renault, which depends heavily on the EU market.
EU carmakers who assemble pure-electric cars in China are likely to suffer as they may face higher tariffs if they want to export their cars assembled by their mainland ventures to the European market.
Additionally, brands like VW and Mercedes-Benz, whose sales in China make up 36 per cent of their global total, may be affected by potential retaliation from the Chinese government. Beijing has indicated it could raise tariffs on large-engine European cars from 15 per cent to 25 per cent.
What do the tariffs mean for the Chinese and European economies?
Moody’s Ratings forecasts that the initial economic impact will be small for both China and the EU as pure EVs make up just 1 per cent of all Chinese auto exports.
The impact from the EU tariffs on China will be larger than that inflicted by the US because of the stronger integration between the two economies’ auto supply chains.
The longer-term effects are less certain. A decision by foreign carmakers to move some of their production capacity from China would crimp the sector’s growth, Moody’s said.
Should the tariff increases lead to sustained trade barriers in the auto sector between the EU and China, this would complicate investment strategies and supply chains, creating risks for both regions.