Europe pushes ahead with China EV tariffs despite Germany’s objection

The European Union has voted to move forward with its plan to impose tariffs on electric cars imported from China, despite recent moves by Germany to attempt to block the proposal.

Chinese EV production has soared lately, as the country’s efforts to secure mineral contracts and build up its local auto manufacturing base have borne fruit.

Along with that drastic rise in EV production has come a rapid rise in EV sales within the country – and a rise of exports as well.

As those exports have hit international shores, audiences from Australia to Europe have found Chinese EVs as quite a reasonable value proposition when compared to domestic manufacturers, and sales have risen overseas as they have domestically.

This has been troubling for domestic European manufacturers, who have found it tough to keep up with the low prices that Chinese manufacturers are able to sell their cars at.

The EU has accused China of “flooding” its market with these EVs, and of unfair subsidy practices towards its local auto industry. (The EU also subsidizes EVs)

As a result of this, Europe decided to impose tariffs on Chinese EVs, with a sliding scale based on which manufacturers it deems most out of compliance with its investigations. Those numbers have been modified as negotiations have gone on, but have currently landed between 7.8% and 35.3%. This is notably much lower than the US tariff, which was recently raised from 25% to 100% and went into effect just a week ago.

Europe votes to impose tariffs, with German opposition

Today, the European Commission took a final vote to impose the tariffs. 10 member states supported the plan, 12 abstained, and 5 voted against, with the most significant opposition coming from the EU’s most populous country and the one with its largest auto industry, Germany.

While the initial vote passed easily with little opposition and many abstentions, including from Germany, the country changed its position and decided to oppose the tariff at today’s vote.

Germany had hoped to rally more nations to vote against the tariffs, but it was always going to be a high bar, requiring 15 countries and 65% of the EU population to overturn the previous vote. As of this week, it became apparent that Germany was never going to get there.

At first glance it seems incongruous that the country with the largest auto industry in Europe might oppose tariffs that are intended to protect the European auto industry. But the reason for this is because German automakers sell a lot of high-end and profitable vehicles to China, and fears retaliatory tariffs of the sort that often come up when countries erect trade barriers.

China specifically has been quite effective at targeting its retaliatory tariffs in the past. In response to trump-era tariffs, China enacted a 25% tariff on US goods in 2018 which, among other things, devastated the US soybean industry. China has already started investigating several EU product categories like brandy, dairy and pork products, and related European industry groups feel “abandoned” by their governments in face of this threat.

Beyond the threat of tariffs, Chinese consumers have been increasingly looking inward as well, abandoning foreign brands partially due to nationalistic sentiment as they feel that other countries have treated them unfairly.

So Germany sees how a Chinese tariff on European autos might hasten its decline in the world’s (just-recently-2nd) most populous country, cutting it off from 1.4 billion potential consumers.

Its vote against may have been tactical, though – an attempt to have their cake and eat it too. Germany may want the protective effects of a European tariff, allowing them to continue to sell to domestic buyers without being undercut by Chinese brands, but also want China to think that they were trying to stop the tariffs, thus lessening Beijing’s desire to retaliate against poor little Germany which did everything in its power to stop these tariffs.

European tariffs are also significantly lower than those recently imposed by the US, and Europe has been actively talking to Beijing and has modified tariff pricing and may modify it more going forward. This may be another tactical decision – by showing that it is more willing to work with China than the US is, and by setting a more “reasonable” tariff, the EU can portray itself as less extreme and thus less worthy of retaliation.

Electrek’s Take

If you’d like to read 3,300 words on what I think about this whole tariff idea, head on over to my article “Tariffs on China aren’t the way to win the EV arms race – getting serious on EVs is.” I promise you it’s a pretty good one. While the article is about the US tariff, much of it applies to Europe as well.

The fact is, tariffs are popular, but usually don’t work very well. We have a lot of examples of this happening, and while “most economists agree” should not be a silver bullet rule for interpreting the world, in this case, I think they’re generally right.

At best, I think these tariffs will offer a temporary reprieve to local manufacturers – which we have already seen they are more than willing to use to delay their plans and put themselves back into the exact same position they’re already in: behind.

Meanwhile, what it immediately does is increase prices for EU consumers, and reduce EU manufacturers’ desire or need to compete on price. In a time where every country around the world has recently struggled with inflation, making one of the things that households spend the most money on more expensive doesn’t seem too wise.

This will also make people less willing to replace gas guzzlers with newer, cheaper-to-run electric vehicles, which means not only sustained high fuel costs for those families, but sustained high climate and health costs from the increased climate change that comes from using those old vehicles.

So I just don’t see this as the smart choice. Germany eventually came around to the right decision here – but it could have exercised leadership earlier, instead of playing tactical games and trying to appear as if it’s on both sides.

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