German pressure on EU-China trade outcomes piles up as Commission tariffs kick in

Pressure from Germany to reconsider trade tariffs on China-made electric cars is set to intensify in the coming weeks as member states start negotiating their official stance on the issue, after the Commission confirmed on Thursday (4 July) that provisional duties kick in from Friday.

The slightly re-calculated levels announced on Thursday will see non-cooperating companies including Chinese state-owned SAIC (a partner of Germany’s Volkswagen group) get tariffs of 37.6% – down from 38.1% announced in June – while companies that have cooperated with EU investigators will pay duties of 20.8%, down from the initial 21.0%. 

Tariffs imposed on vehicles made by Geely were lowered by 0.1 percentage points to 19.9%, while cars made by BYD will be subject to duties of 17.4% – the same as originally reported in June. 

Meanwhile, Tesla “may receive an individually calculated duty rate at the definitive stage […] following a substantiated request,” the EU executive said, adding that “any other company producing in China not selected in the final sample that wishes to have its particular situation investigated can ask for an accelerated review”. 

The changes in the recalculated tariff rates were due solely to accounting errors, the Commission said.

These rates are based on the specific levels of subsidies a company received from the Chinese government over the investigation period from October 2022 to September 2023 – divided by that firm’s annual turnover.  

At this stage, the payments will be made in the form of bank guarantees, to be collected from Friday (5 July), while the full cash transfers will be made if and when the duties are definitively imposed.  

BDI warns against ‘national solo efforts’ as German stakes remain high 

Today’s announcement marks the start of the second phase of the EU’s ‘trade defence’ procedure, which entails negotiations among member states to determine the final outcome of the legislative process.

The Commission’s tariff decision – which will be communicated on 24 October – will only enter permanently into force if not opposed by a qualified majority of EU countries – i.e. a minimum of 15 countries representing at least 65% of the total EU population. 

Member states will hold an initial non-binding vote – requiring a simple majority of at least 14 countries – already in two weeks, which means talks with the Commission, as well as among national delegations and stakeholders, are set to speed up, especially from the German side. 

Given how entangled German carmakers’ supply chains are with Chinese production – as well as the relevance of China as an export market for German cars – the country has been the most vocal stakeholder pushing for a negotiated agreement to ward off the imposition of definitive tariffs. 

Leading German business association BDI also spoke in favour of continued negotiations with China on Thursday.

“Provisional countervailing duties are not a contradiction to negotiations,” Tanja Gönner, managing director of the umbrella lobby group, commented after the Commission’s confirmation of preliminary tariffs this morning. 

“It is now important to use the time window until the introduction of permanent tariffs in autumn for intensive talks with Beijing. A negotiated solution in which China makes binding commitments to reduce state subsidies would be the best way forward.” 

However, Gönner also warned against “national solo efforts”, saying they would “not only weaken the position of the EU Commission in the ongoing proceedings but also jeopardise the use of trade policy safeguards”. 

“The BDI appeals to the EU Commission and member states to demonstrate unity to the outside world,” she said. 

“The Commission’s negotiating line should reflect the diversity of interests in the EU,” she said, adding the bloc should strike a new balance between “the right approach to industrial policy and open markets.” 

On Wednesday (3 July), the German car industry association VDA urged the Commission to withdraw the tariffs, citing figures showing “German manufacturers sold around 10 times as many electric cars in China as Chinese brands in Germany, and around 100 times as many cars in total.”

Asked about the plea on Wednesday, German Economy Minister Robert Habeck (Greens) – who has proactively pressed for a conciliatory agreement with China – did not want to share the VDA’s appeal but said he hoped for a “negotiated solution”. 

Habeck said there was “room for diplomacy”. “If you say: look, we’re on a good path to an agreement now, we’ll push the date a little further – I wouldn’t object to that.” 

Kiel economists map out tariff consequences, suggest ditching existing duties 

Meanwhile, analysts from the influential economic policy think tank Kiel Institute said in a note on Thursday the newly imposed tariffs are set to curb Chinese car imports by a huge 42% in the long term – but should be largely offset by increased European sales and imports from third countries. 

The German-based research centre, alongside the Austrian Institute of Economic Research (WIFO) and the Supply Chain Intelligence Institute Austria, also forecast that the duties “will have a negligible long-term impact on vehicle prices,” which “might rise by an average of 0.3 to 0.9% ” in the EU.  

EV prices in China, meanwhile, could decrease, they added. Overall, “short-term effects could be more pronounced,” the analysts said. 

In terms of value added, the new tariffs are expected to add 0.4% across the European car industry, while the Chinese sector is projected to lose about 0.6%. 

However, the group of economists suggested the EU should focus on an alternative scenario, based on eliminating the existing 10% import duties the bloc applies “on cars from World Trade Organisation member countries without a free trade agreement.” 

If only countervailing tariffs were applied – i.e. those Europe imposes on EVs to offset the effect of Chinese state subsidies on market prices – imports from China would “only decrease by about 20%, while imports from third countries would increase by over 1%”. Meanwhile, EV prices in Europe would drop by up to 0.8%. 

This scenario, the analysts argued, “would enhance EU welfare more than the pure countervailing duty scenario, and the green transformation would benefit from more ‘fair trade’ ”.  

“This approach could demonstrate what the new trade policy doctrine, which aims for trade policy to be ‘open, sustainable, and assertive,’ means in practice,” said WIFO’s Director Gabriel Felbermayr. 

“With the countervailing duties, the EU supports the multilateral trading system and fair competition,” he argued. “Conversely, by reducing the existing import duties, the EU could show that it also pursues the affordability of electric vehicles and the green transformation.” 

[Edited by Zoran Radosavljevic, Anna Brunetti]

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