EU Crackdown on Chinese EVs Could Hurt Competitiveness and Consumer Choice

The European Commission is to investigate Chinese car manufacturers as part of a probe into whether to impose punitive tariffs to protect European electric vehicle (EV) makers. EU experts plan to visit Chinese manufacturers BYD, Geely, and SAIC, reported Reuters. As Hungary is to welcome their second BYD manufacturing facility in Szeged in the coming future, such measures could influence the viability of the much publicized mega-investment.

The year-long probe will look into the effects of state-subsidies that the Chinese government offers to its car manufacturers, namely how it influences the European EV market when local manufacturers find it increasingly difficult to compete with cheaper Asian exports. However, any decision to slap tariffs on import cars could open the gates to a trade war, as China is already labeling the European Commission’s (EC) efforts “protectionist.”

So far, only the manufacturing giant Geely had responded to the initiative as far back as October 2023, stating that the company followed all laws and supported fair market competition globally, reported Reuters.

In 2023, the Chinese EV imports’ share in the EU had reached a relatively low eight percent, but this could reportedly rise to double that amount by 2025. The products imported are increasingly competitive with the offerings of large European legacy car brands, such as BMW or Renault, yet still manage to stay some 20k cheaper on average.

The question is whether European consumers and car manufacturers should rejoice at the news, and welcome a more assertive European Commission that is determined to protect its markets and industry against cheaper, state-subsidized Asian imports. Yet Brussels’ market protection measures are in fact a double-edged sword. While protecting jobs in the car industry could certainly sound imperative as some 13 million people earn their bread through it in the EU alone, the EC will have to find a viable solution to how it wants to achieve this.

Export tariffs and market protection are in fact a state subsidy by other means. Putting customs duties on foreign goods allows local manufacturers to sell their products for a larger profit margin. While it serves European companies and the interests of their employees, as well as protecting vital tax revenues, such measures have their own price that can never be transferred onto the outside parties entirely.

Such an approach has increasingly diminishing results the larger and the economically stronger the sanctioned party is. In China’s case, the stakes could not be higher as European economies and the corporate sector are strongly intertwined with the new Asiatic superpower’s economy. The sanctions against Russia have shown just how difficult and expensive it is to ween the European corporate and energy sector off an even smaller trading partner, and opinions have been voiced, claiming that the war sanctions hurt the EU’s economies and consumers significantly harder than they did their intended target: Russia.

The Chinese GDP for 2023 is forecast to be at around USD 28.8 trillion, while the EU’s will stay firmly under 20 trillion. This is an ominous fact when one considers China’s past willingness to answer tariffs and sanctions with their own. While economies as the U.S.’ were able to absorb such retaliatory measures in the past, the sluggish European economy might struggle to come up on top in a trade dispute with China.

Signs are that the Chinese government is already working on its own response, as in the beginning of the year they initiated an anti-competitiveness inquiry against alcoholic products imported from France, a country that is very much advocating the anti-EV tariffs. Last year’s limited ban on iPhones also sent ripples down markets, as the Chinese mobile phone market is critical for U.S. manufacturer Apple, that sells over USD 70BN worth of phones in China annually.

Featured Image: Facebook/BYD Europe