As negotiations between China and the European Union (EU) on the electric vehicle surtax continue, Beijing is calling on Chinese automakers to stop investing in European countries that voted in favor of additional tariffs on October 4, such as France or Italy. Is China trying to give itself negotiating leverage in anticipation of the next round at home, or does it intend to further divide Europe, of which it has been a part since the beginning of this very fragmented saga?
On October 4, the EU approved the imposition of new customs tariffs on electric vehicles imported from China, up to 45% on top of the current 10%, for a period of 5 years. This decision was supported by 10 member states, including France and Italy, with 5 votes against, notably Germany and Hungary, and 12 abstentions, including that of Spain.
Beijing excludes countries in favor of the surtax
This vote constituted a final decision and confirmed the provisional taxes put in place in July 2024, a measure that followed an investigation launched in October 2023 and led by the European Commission (EC) to determine whether Chinese producers benefited of government subsidies. This constitutes, in the eyes of the EU, unfair competition for European producers.
China immediately expressed its dissatisfaction, underlining that these taxes could damage trade relations between the EU and China. Beijing denounced ”purely protectionist behavior”, warning of the possible repercussions of such a measure and stating its firm intention to “adopt all measures to firmly defend its legitimate rights”. China had also announced an anti-dumping investigation into European pork imports, following one already opened into EU wine spirits; like cognac.
After the October 4 vote, the anti-dumping investigation into cognac quickly gave way to temporary measures. “From October 11, 2024, import operators will have to provide the corresponding margin to the customs of the People’s Republic of China,” China’s Ministry of Commerce announced. “We believe that these measures are unfounded and are determined to defend European industry from the abusive use of trade defense instruments,” the EC responded.
The same institution says it is ready “to continue negotiating an alternative”, such as a price revision or, above all, a commitment from Beijing to invest on European soil to produce its electric vehicles. But after eight rounds since September 20, “major disagreements” remained, China’s Ministry of Commerce lamented on October 12.
But one of the alternatives desired by the EU could soon be excluded by Beijing. This was reported by the Chinese government <a href="https://www.reuters.comReuters On Thursday 31 October, he asked car manufacturers to stop investing heavily in European countries that have supported these additional customs duties, which can reach up to 45.3% and which came into force this week.
The major targeted Chinese manufacturers, BYDt, SAIC and Geely, were informed on October 10, during a meeting organized by the Ministry of Commerce, that they would have to suspend their heavy investment projects, such as factories in countries that have supported the proposal, the British agency reported.
Beijing calls for caution regarding projects underway in countries that have abstained, but “encourages”, continues the same source, to invest in countries opposed to these European fiscal measures. Reuters interprets this maneuver as a desire to gain leverage negotiation in anticipation of the next round, while avoiding a decline in exports to a key market, which accounted for more than 40% of EV sales in 2023.
In Italy, which is in favor of the EC measure and whose government was in negotiations with Chery, the largest Chinese car manufacturer by exports, sees the Dongfeng factory project and the launch of the Deepal brand by Changan cancelled.
In France, where SAIC, China’s second-largest car exporter, plans to open a second European spare parts center, a meeting is scheduled for Sunday between the French Foreign Trade Minister, Sophie Primas, and her Chinese counterpart, Wang Wentao in Shanghai, to cope with the increase in customs tariffs.
“France’s position is not just offensive, we need to dialogue and not just confront each other,” a French diplomatic source told Reuters on Tuesday. “We have interests in China, it is important to maintain the dialogue which must take place under good conditions and on fair competition,” we added.
As for BYD, which is building a factory in Hungary, the manufacturer is also considering moving its European headquarters from the Netherlands to Budapest.
During the October 10 meeting with the Ministry of Commerce, manufacturers were also reminded of the ban on conducting separate negotiations with European governments.
Time.news Editor: Welcome to Time.news! Today, we’re diving deep into the ongoing negotiations between China and the European Union regarding electric vehicle tariffs. With us is Dr. Mei Zhang, an expert in international trade and Chinese automotive markets. Dr. Zhang, thank you for joining us.
Dr. Mei Zhang: Thank you for having me! It’s a pleasure to discuss such a critical and evolving topic.
Time.news Editor: Let’s jump right in. On October 4, the EU approved significant customs tariffs on electric vehicles from China—up to 45%. Could you elaborate on the implications of this decision for both China and the EU?
Dr. Mei Zhang: Absolutely. The imposition of these tariffs signals a growing protectionist sentiment within the EU, particularly targeting Chinese manufacturers who have gained a competitive edge through significant government support. For China, this presents not just a challenge but also a crucial test of its economic resilience and negotiation strategy. On the European side, it could bolster local industries but may hinder innovation and escalate tensions in trade relations.
Time.news Editor: Beijing has responded strongly, urging Chinese automakers to halt investments in European countries that supported these tariff changes. Why do you think China is taking such a hardline approach?
Dr. Mei Zhang: This maneuver appears to be a double-edged sword for China. On one hand, it’s a form of leverage in negotiations—sending a clear message to Europe that China will not passively accept what it sees as unjust measures. On the other hand, it risks further fracturing EU unity, potentially causing rifts between countries that supported the tariffs and those that opposed them, like Germany and Hungary.
Time.news Editor: You mentioned the possibility of a rift within Europe. What are the major consequences for European countries that have supported these tariffs?
Dr. Mei Zhang: The countries in favor, like France and Italy, may face backlash in the form of reduced Chinese investments, which could impact local job markets and economic growth. Moreover, companies in these countries that rely on exports to China might also face retaliatory measures, as seen with China’s anti-dumping investigations into European pork and cognac. It’s a complex domino effect that could destabilize certain sectors.
Time.news Editor: Considering the negotiations, the EU has expressed willingness to explore alternatives, like asking Chinese manufacturers to invest more in Europe. How likely is it that they will reach a beneficial compromise?
Dr. Mei Zhang: Historically, negotiations of this nature involve prolonged discussions, especially given the current “major disagreements” highlighted by Chinese officials. A possible compromise could include a phased approach to tariffs or commitments from Chinese companies to establish production facilities in Europe. However, trust issues and national interests on both sides will complicate this process, making a quick resolution unlikely.
Time.news Editor: You have pointed towards trust issues. Could you elaborate on how this impacts the negotiations?
Dr. Mei Zhang: Trust is fundamental in trade negotiations. The perception of EU tariffs as protectionist measures naturally breeds skepticism in China about Europe’s intentions. Similarly, the EU harbors doubts about China’s subsidy practices and their fairness in competition. Without addressing these foundational issues, negotiations are likely to stumble.
Time.news Editor: What about the Chinese manufacturers? How are firms like BYD and Geely responding to these directives from Beijing?
Dr. Mei Zhang: Chinese auto manufacturers are in a precarious position. They’re feeling the pressure to abide by government directives while trying to maintain their market share in Europe, which accounted for a notable portion of their sales. Firms may pivot their strategies and focus on markets that remain open or are supportive of their investment, which could include countries that abstained from voting on the tariffs.
Time.news Editor: Looking ahead, what do you expect will happen in the next round of negotiations?
Dr. Mei Zhang: The upcoming negotiations will likely be contentious. Both parties are entrenched in their respective positions. However, the stakes are high, especially for European countries that want to strengthen their automotive industries and for China, which aims to maintain its export levels. If both sides can acknowledge each other’s concerns and explore pragmatic solutions, there remains a path forward, though it may be a long one.
Time.news Editor: Thank you, Dr. Zhang, for your insights into this complex issue. As negotiations continue, we’ll certainly be watching how this all unfolds.
Dr. Mei Zhang: Thank you for having me. It’s an evolving situation that will undoubtedly continue to impact global trade dynamics.