By Philip Blenkinsop and Charlotte Van Campenhout
BRUSSELS (Reuters) – The European Union will impose tariffs of up to 37.6 percent on imports of Chinese-made electric cars from Friday, EU officials said, raising tensions with Beijing in Brussels’ biggest trade issue yet.
But there is a four-month window during which the tariffs are temporary, and intense talks between the two sides are expected to continue as Beijing threatens widespread retaliation.
The European Commission’s temporary tariffs, which range from 17.4% to 37.6% with no retrospective date, aim to prevent what its president, Ursula von der Leyen, has described as a threatening flood of cheap electric cars built with state support.
The rates, set out in a 208-page document published on Thursday, are almost identical to those announced by the commission on June 12. The commission made the adjustments after the companies identified minor calculation errors in the initial disclosure.
Beijing said at the time that it would take “all necessary measures” to protect China’s interests.
This could include retaliatory tariffs on exports to China of products such as cognac or pork.
There is no basis for retaliation by China, EU Trade Commissioner Valdis Dombrovskis said.
“Our goal is to … ensure fair competition and equal opportunities,” he said in an interview with Bloomberg.
The EU’s anti-subsidy investigation still has about four more months to go.
Ultimately, the Commission, the EU’s executive arm, can propose final duties, usually for five years, which EU members vote on.
“Talks with China are ongoing, and if a mutually beneficial solution is reached, we can also find ways to not eventually apply tariffs,” Dombrovskis said.
“But it is very clear that this solution (will need to) resolve the distortions that we currently have in the market… and it has to be compatible with the market.”
China’s Commerce Ministry said on Thursday that the two sides have so far held several rounds of technical talks on tariffs on the issue.
“We hope that the European and Chinese sides will move in the same direction, show sincerity, and push forward the consultation process as soon as possible,” ministry spokesman He Yadong said.
The European Commission said on Thursday that BYD (SZ:) faces a 17.4% tariff, Geely (GEE:) 19.9% and SAIC (SAIC:37.6%). The duties are in addition to the EU’s standard 10% tariff on car imports.
Companies deemed to have cooperated with the anti-subsidy investigation, including Western automakers Tesla (NASDAQ:) and BMW (ETR:), will be subject to a 20.8% tariff, and those that have not will be subject to a 37.6% rate.
Higher prices
Chinese electric car makers will have to decide whether to absorb the tariffs or raise their prices to cover billions of dollars in new costs at the European border.
“Chinese automakers are desperate to expand their sales outside China since the domestic price war started to affect them,” said Tu Li, founder of consultancy Sino Auto Insights.
Opponents of the tariffs say increasing the costs of electric cars for European consumers would undermine the EU’s goal of becoming carbon neutral by 2050.
Chinese brands MG and Nio (NYSE:) indicated on Thursday that they may raise their prices in Europe later this year. Tesla said last month it plans to increase prices for its Model 3.
The prospect of tariffs could encourage Chinese automakers to invest in factories in Europe, even though labor and manufacturing costs are higher than in China.
On Thursday, Xpeng (NYSE:) became the latest electric vehicle maker to consider setting up manufacturing in the region to avoid tariffs.
Volkswagen, Europe’s largest carmaker, was quick to criticize Thursday’s announcement.
“The negative effects of this decision outweigh any benefits for the European and especially German car industry,” a Volkswagen spokesman said in a statement.
Auto industry executives have warned against tariffs, fearing countermeasures that could hurt the competitiveness of their cars in China where they are already struggling to keep up with a growing number of domestic rivals.
German carmakers made a third of their sales last year in China.
The Commission estimates that the share of Chinese brands in the EU market has risen to 8% from less than 1% in 2019, and could reach 15% in 2025. It says prices are typically 20% lower than models made in the EU.
EU support declines
European policymakers are keen to avoid a repeat of what happened with solar panels a decade ago, when the EU took limited action to limit Chinese imports and several European manufacturers collapsed. The EU launched its investigation into Chinese electric vehicle subsidies in October.
The case will be put to EU members in a consultative vote in the coming weeks, the first formal test of support for the Commission’s case, which is the first trade case of its kind.
Although the Commission launched its investigation without a complaint from industry, members are hesitant about whether to support additional tariffs, highlighting the challenge Brussels faces in winning support for the issue.
The China Passenger Car Association said the tariffs would have a modest impact on the majority of Chinese companies.
These rates are much lower than the 100% tariffs that Washington plans to apply on Chinese electric car imports starting in August.