The EU is expected to hit Chinese electric cars with tariffs

The EU is expected to hit Chinese electric cars with tariffs

By Theo LeggettBBC international business correspondent

Getty Images A BYD Seagull Getty Images

The European Union is likely to impose tariffs on China as it is accused of selling electric automobiles at artificially low prices this year.

The BYD Seagull is a tiny, cheap, neatly styled electric vehicle ( EV ). An urban runabout that wo n’t break any speed records, but nor will it break the bank.

In China, it has a starting price of 69, 800 yuan ($ 9, 600, £7, 500 ). Due to safety concerns, it is anticipated that the cost of transportation in Europe will be at least twice that amount. But that would still remain, by electric vehicle standards, very low.

That prospect is worrying for Western companies. They worry that the tiny Seagull may turn out to be an aggressive varieties, one of a number of Chinese-built types poised to invade their own markets at the cost of indigenous vehicles.

Over the past 20 years, China’s domestic vehicle industry has grown quickly. Its creation, along with that of the power market, was a key component of the” Made In China 2025″ strategy, a 10- year professional policy launched by the Communist Party in Beijing in 2015.

As a result, businesses like BYD are now competing with Tesla to become the biggest electronic vehicle maker in the world. Established companies such as SAIC, the owner of the MG company, and Volvo’s user Geely, have also become huge participants in the EV business.

Last year, more than eight million electric vehicles were sold in China – about 60% of the global total, according to the International Energy Agency’s annual Global EV Outlook.

For politicians in Europe and the US, yet, this is a cause for concern. They worry that their own businesses may not be able to thrive because Chinese companies have a lot of surplus power and are entering foreign markets. They assert that substantial subsidies for domestic production keep Chinese companies ‘ prices at a level that different companies may struggle to match.

According to a report by the Swiss bank UBS, published in September, the Chinese advantage is real. It suggested that BYD could produce cars at some 25% lower cost than the best of the legacy global carmakers.

BYD and another Chinese companies were” set to conquer the world market with high-tech, low-cost Vehicles for the people,” according to the statement.

Meanwhile, earlier this year, the Alliance for American Manufacturing warned that the introduction of cheap Chinese cars could be an “extinction-level event” for the US auto industry. It called for a “dedicated and concerted effort to turn those imports back”, concluding that there was “no time to lose”.

Last month, the US took decisive action. The Biden administration raised its tariff on imports of Chinese battery-powered cars from 25% to 100%. Sales of Chinese-made EVs in the US are currently negligible; with the new tariffs, they are likely to stay that way.

The action was a component of a wider set of measures that Beijing has labeled “naked protectionism” and targeted imports from China.

The US is also subsidizing its own auto economy through tax incentives, which lower the cost of purchasing domestically produced cars.

The EU appears to be taking a more reasonable approach, despite strong language.

Ursula von der Leyen, president of the European Commission, made an announcement about an exploration into Chinese goods in her state of the union address in September of last year.

She claimed that “less expensive Taiwanese electric cars are now flooding the world.”

” Their rate is artificially lower by substantial state subsidies. This is distorting our business”.

The primary outcomes of that research are now on the verge.

The Commission’s anticipated provisional increase of duties on imported EVs from China will be between 20 and 25 % higher than the standard 10 % for imports from third countries.

Getty Images Ursula von der LeyenGetty Images

This would be a much more equal answer than the US move, according to Schmidt Automotive Research’s Matthias Schmidt.

” The 100 % tariff is simply pure protectionism, discriminatory and stifles development, and prevents a dynamic environment for the consumer”, he says.

” If the EU imposes tariffs of no more than 25 %, it will be more about leveling the playing field and sprinkling up the 30 % cost advantage Chinese manufacturers have.”

However, tariffs may harm Western firms as well as helping them.

Initially, they would not just affect Taiwanese brands. For instance, BMW’s iX3 energy SUV is built at a shop in Dadong and exported to Europe. Additionally, the business intends to buy a lot of Chinese-made energy Minis.

Both designs may become subject to the tariffs, leaving the company to collect the additional cost, or lift prices. Tesla, a US company that manufactures automobiles for trade to Europe, would also be affected.

Second, although Western makes have invested strongly in production in China in recent years, in partnership with regional manufacturers, a number of them also export higher- value models to Chinese markets.

These shipments might be targeted if China wanted to retaliate by imposing its own stringent tariffs.

Getty Images A BMW i5 electric carGetty Images

It makes sense then that executives at European carmakers have been remarkably unfavorable of the EU’s initiative.

Earlier this year, Volkswagen Group’s chief executive Oliver Blume warned that the introduction of tariffs was “potentially dangerous”, because of the risk of retaliation.

BMW’s CEO, Oliver Zipse, said last month that “you could very quickly shoot yourself in the foot” if you engaged in trade wars. He added that” we do n’t think our industry needs protection.”

In an effort to encourage European companies to do a better job, Ola Källenius, the CEO of Mercedes-Benz, has gone a step further by publicly calling for tariffs to be lowered rather than raised on Chinese EV imports.

France has largely backed the EU investigation. Yet even among French manufacturers, there is doubt as to whether tariffs are the correct approach.

Carlos Tavares, head of the Stellantis group which includes Peugeot, Citroen, Vauxhall/Opel and DS, has described them as” a major trap for countries that go down that path”.

He has warned that European carmakers are engaged in a” Darwinian” conflict with their Chinese rivals, which will likely have social effects as they lower their costs in an effort to compete.

Renault’s chief executive Luca de Meo, meanwhile, says” we are not in favour of protectionism, but competition must be fair”.

In an effort to compete with both, he has demanded the adoption of a strong European industrial policy to advance the sector, drawing inspiration from those taken up by the US and China.

Meanwhile, the UK is looking on with interest. The Trade Remedies Authority, the country’s trade watchdog, has previously stated that, if ministers or the industry desired an investigation into Chinese electric vehicles, he would be ready to do so.

It is understood that no such request has been made so far. Ultimately, as a deeply political issue, it will be something for the next government to address, after the election.

For both automakers and policymakers, higher tariffs may give Europe more time to adapt to the challenge presented by China.

However, many in the sector acknowledge that if Europe is to remain a major player in the global automotive industry, it will need to do much more than simply erect barricades at home.

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