One day before application, German car lobby urges EU to drop tariffs against China

3 months ago 16

One day before the preliminary application of tariffs on electric cars from China, due on Thursday (4 July), Germany’s main car industry lobby VDA called on the EU to pull back on the tariffs, arguing that they will do more harm than good.

On Thursday, additional tariffs of 17.4% to 38.1% are set to come into effect for electric cars made in China and imported to the EU, including on models produced by European companies in China.

The countervailing duties, which the European Commission argues are necessary to compensate for “unfair” state subsidies for Chinese car manufacturers, “are not in the interest of the European Union,” VDA wrote in a position paper published on Wednesday.

“The planned tariffs will make it more difficult to successfully ramp up electromobility and thus decarbonise,” the association warned, adding that “they also harm both European consumers and European companies”.

VDA instead called for “a negotiated solution with China”, adding that “the EU can protect its legitimate interests and address upcoming challenges in talks”.

Alongside Chinese companies, several European carmakers who produce parts of electric vehicles in China are also affected by the new tariffs, the largest of which are Romania’s Dacia (part of the French Renault Group) and Germany’s BMW.

According to the results of the Commission’s investigation, they will face an additional 21% import duty, while Chinese EV market leader BYD (‘Build Your Dreams’) will only see a 17.4% duty, as it was able to prove a lower level of subsidy during the investigation.

China’s state-owned SAIC – a partner of Germany’s Volkswagen group – will face the highest additional duty of 38.1%. However, Commission officials quickly pointed out after the initial announcement on 12 June that the SAIC-Volkswagen joint venture is currently not directly affected, as it does not produce for the EU market.

No ‘flood’ of Chinese EVs

The VDA car lobby, which represents brands like Volkswagen, BMW, and Mercedes-Benz, and automotive suppliers such as Bosch, Continental, and ZF Group, also argued that German exports could take a hit.

“China is currently the largest destination for exports from German suppliers,” it noted, and it is also the third-largest destination for German car exports, after the US and the UK.

“Chinese countermeasures could severely affect the European economy, especially export-orientated sectors,” VDA warned.

Taking direct aim at Commission President Ursula von der Leyen, who warned of Chinese electric cars “flooding” global markets in September 2023, VDA argued that “no ‘flooding’ of the market by Chinese BEVs is to be expected”.

On the contrary, “in 2023, 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,” it said.

Even in the long-term, the market share of Chinese manufacturers will “settle in the range of five to 10 per cent,” VDA wrote, referring to projections for 2030 by analyst S&P Autoinsight.

Contrary to the industry view, experts from Berlin-based think-tank Jacques Delors Centre consider tariffs “justified from the standpoint of European industrial policy and trade strategy”, but noted that they deliver “a clear disservice to the climate”.

“Unlike the trade measures recently introduced by countries like the US and India, they are clearly designed to offset proven subsidies and are unlikely to be prohibitive,” Arthur Leichthammer and Nils Redeker wrote in a Delors Centre’s policy brief published on Monday.

“In many cases, Chinese companies would simply be able to absorb the new tariffs into their margins and still export to the EU at a profit,” they said.

While the preliminary tariffs are set to apply on 4 July, the final decision on countervailing duties will only be taken by November, with EU-China negotiations ongoing in the meantime.