Within the past three years, Chinese-manufactured electric vehicles (EVs) have moved from under four percent of the European EV market to 25 percent. This significant jump in market share is due to the Chinese government subsidizing costs for manufacturers, allowing them to sell their cars at artificially low prices and putting Western manufacturers out of business.
This week, increased duties on EVs imported from China will go into effect in the European Union.
Economic Dilemma of Chinese EV Imports
The massive number of electric vehicles (EVs) available for import from China is posing a puzzling economic dilemma for Western nations. On its face, the availability of affordable, environmentally friendly vehicles is a positive for Americans and Europeans who are conscious about reducing emissions and purchasing sustainable, lower-cost products.
Impact on U.S. Automotive Industry
However, on the other side of the economic exchange, Chinese EVs will put the U.S. automotive industry out of business and pose a national security risk if consumers are too reliant on Chinese manufacturing for necessary goods such as cars.
Trade Imbalances and Government Subsidies
One of the significant problems with the current state of trade between China and the EU or China and the U.S. is that the Chinese government often subsidizes the manufacturing of goods in China to allow those products to be priced competitively in Europe and North America, taking a significant portion of the market share and harming western companies.
Principles of Free Trade
Free trade is predicated on the principle that governments must not interfere with the pricing of goods and services, such as through subsidies that could lead Chinese manufacturers to sell items below market costs, giving them an unfair advantage against other manufacturers who do not receive subsidies from the government.
European Commission’s Findings
After studying the matter for eight months, the European Commission determined that the Chinese government was financially supporting the Chinese companies manufacturing EVs for export.
Subsidies from the Chinese government include unfair advantages such as offering discounted land to build factories, supplying manufacturers with under-market-value batteries and lithium owned by the state, and giving tax breaks and below-market financing rates to manufacturers from state-run banks.
Altogether, these benefits result in a significantly lower cost of production than that faced by competitors outside of China.
Impact on European Car Manufacturers
According to the EU, allowing Chinese EVs to flood the European market would undermine the efforts of domestic car manufacturers and lead to job losses in Europe. As a result, the EU announced in June that it would impose significant tariffs, which will hit the market on Friday, July 5.
Tariffs will not need to be paid between now and when the EU evaluates its final rule in four months, but they will be tallied up in the event that payment is due when the final rule is potentially passed in November. During the provisional period, Chinese trade officials can negotiate with European leaders to find a mutually beneficial solution to the market share competition problem.
Latest Trade Conflict
The latest trade conflict between China and its Western competitors is the issue of artificially lower-priced EVs hitting Western markets. Subsidized Chinese manufacturers, such as solar panels, have already infiltrated the green technology market, negatively impacting their American and European counterparts.
Western Countries’ Stance on Tariffs
Western countries are not interested in collecting tariffs and duties as a matter of policy, but as a way to level the playing field vis-a-vis products being imported from other countries where the cost of production is artificially cheaper due to government subsidies or because of the immoral use of enslaved person or child labor to manufacture goods then sold into the United States at a lower price point than could be produced by American companies obeying the laws about pollution, safe labor, and wages.
Specific Duty Rates
If the duty rates are approved in November, import duties would be 17.4 percent on cars from BYD Auto Co. and 19.9 percent on Geely cars. Vehicles from the state-owned Chinese company SAIC would have a duty of 37.6 percent.
Impact on Western Manufacturers in China
Western companies also manufacture EVs in China and would face duties of 20.8 percent. Volkswagen, BMW, and Tesla manufacture cars in China, and their exports fall under this category.
Divided Opinions Among Western Manufacturers
These Western car manufacturers are divided on the tariffs, as they will also be impacted by the duties. Moreover, they are concerned about China’s likely retaliation in other aspects of the trade wars.
U.S. Duty on Chinese EV Imports
As a comparison, the Biden Administration has announced a 100 percent duty on Chinese EV imports, up from a previous 25 percent duty. This increase will likely block all imports of Chinese EVs as they will not be competitive in the U.S. market.
China’s Reaction
China has already reacted strongly to the news of the increased duties on EVs. Beijing called them “a naked act of protectionism.” A Chinese official said, “It is hoped that the European side and the Chinese side will move in the same direction, show sincerity, expedite the consultation process, and reach a mutually acceptable solution as soon as possible based on facts and rules.”
