Tariffs: on the road to a trade war

The EU is to impose punitive tariffs on electric cars made in China from July. They will also hit Tesla and BMW. Counter-tariffs on EU exports worth billions can be expected.

BRUSSELS/BERLIN/BEIJING (own report) – Shortly before German Economy Minister Robert Habeck’s trip to South Korea and China, there is another twist in the downward spiral of a trade war between the EU and the People’s Republic of China. At the beginning of the week, Beijing launched an anti-dumping investigation into EU pork exports to China. Punitive tariffs are likely to follow. This product group has an annual value of 2.5 billion euros. It will be China’s response to the European Commission announcement that it will impose punitive tariffs ranging from 17.4 to 38.1 per cent on imports of Chinese-made electric vehicles from 4 July. These tariff hikes come on top of the regular import 10 per cent duties. This move by Brussels is highly controversial in Germany. While major car manufacturers vigorously oppose it, the German Economic Institute (IW) reports that a survey of around 900 companies – including lots of small and medium-sized enterprises – showed that some 80 per cent, often ones facing Chinese competition, are in favour of punitive tariffs. The new EU tariffs will also hurt European and US manufacturers that produce cars in China for export. Tesla and BMW are particularly vulnerable.

Imported from China

The market share of electric vehicles produced in China is steadily growing, both in the EU and in Germany. In total, more than 438,000 electric cars, worth 9.7 billion euros, were imported into the EU from the People’s Republic last year.[1] Their market share across the EU soared from around 2.9 per cent in 2020 to 21.7 per cent in 2023. According to figures published by Germany’s Federal Statistical Office yesterday (Tuesday), electric vehicle imports from China as a share of total electric car imports to Germany rose from 7.7 per cent in 2020 to 29.0 per cent in 2023. Indeed, 40.9% of the electric cars imported from January to April 2024 came from China.[2] In understanding these figures, we need to take into account the sharp downturn in electric vehicle sales in Germany at the beginning of the year when the German government suddenly abolished its cash incentive for car buyers.[3] While the market share of electric cars in the overall vehicle market worldwide continues to grow, and could reach 11 per cent in the United States, 25 per cent in Europe and 45 per cent in China this year,[4] it actually fell in Germany from 17.3 per cent in May 2023 to 12.4 per cent in May 2024.[5]

Chinese brands

The share of China-manufactured cars in the EU and German markets is steadily increasing, but not all of them are actually Chinese brands. German and US companies, notably BMW and Tesla, also export to Europe electric cars produced in their plants in China. Industry circles put the share of Chinese brands in the EU market, which was only 2 per cent in 2020, at 7.6 per cent in 2023. The Chinese brands make up around a third of all cars imported from the People’s Republic.[6] In Germany, the share of Chinese brands is even lower, although it is also increasing there, more than doubling from 2.0 per cent in 2022 to 5.5 per cent in 2023. Market analysts recently predicted that manufacturers from China would further boost their market share this year. The decision to cancel the subsidy scheme to incentivise electric vehicle customers has made the market more price-sensitive. Chinese models are “on average 24 per cent below the prices of electric models from German manufacturers, starting from the basic models”.[7] In Germany, however, there may be a counter tendency in consumer preference. According to a recent survey, 54.5 per cent of all German car drivers categorically reject even a test drive in a Chinese vehicle.[8] The survey also finds that antipathy to Chinese cars is particularly strong not among car experts but among consumers with an interest in politics.

Punitive tariffs

Reacting to the growing market share of electric vehicles from China, the European Commission announced on Wednesday last week that it would impose punitive tariffs on imports from 4 July. These affect Chinese manufacturers differently: 17.4 per cent for BYD,[9] 20.0 per cent for Geely, and 38.1 per cent for SAIC. The tariffs are punitive in that they come on top of regular import duties of 10 per cent.[10] Aware of the need not to openly violate WTO rules on protectionism, the Commission will also impose them on imports of vehicles from European and US automakers produced in Chinese plants. A rate of 21 per cent has been set for Tesla and BMW. The official justification for such punitive tariffs is that China engages in unfair competition through state aid along the supply chain. The tariffs are, however, described as provisional. The Commission states that it wants to negotiate an amicable solution with Beijing, which might involve a voluntary cap on exports. If a compromise cannot be found, the provisional punitive tariffs are to become definitive measures from the beginning of November. As is customary, these are then likely to apply for an initial five-year period.[11]

Large corporations versus SMEs

The large German automotive groups are particularly opposed to the EU’s punitive tariffs recently pushed through with strong support from France. BMW boss Oliver Zipse, for example, is quoted as warning that “protectionism” threatens to “set in motion a spiral: tariffs lead to fresh tariffs, to isolation instead of cooperation.”[12] Carlos Tavares, head of Stellantis (Peugeot, Fiat and others), also declared that his group “does not support any measures that contribute to the fragmentation of the world.” Contrary positions have been voiced, however, by German SMEs. A survey recently conducted by the Cologne Institute for Economic Research (IW) questioned around 900 German companies engaged in manufacturing and related services. Reflecting the interests of medium-sized and smaller companies, a rapidly growing number see themselves exposed to increasingly difficult competitive pressures from Chinese companies.[13] Many of them have already seen significant loss of market share and profits. According to the IW study, almost 80 per cent of all the companies surveyed regard punitive tariffs on the electric vehicle imports “as justified”.

“Accepting certain disadvantages”

The IW argues that “Chinese countermeasures would lead to certain economic disadvantages for Germany. But these effects would have to be accepted.”[14] According to the institute, the “effects would be bearable”. After all, they say, “only around 3 per cent of German jobs depend directly and indirectly on exports to China.” Conversely, “if the EU were to waive punitive tariffs, there would be a ‘silent’ but costly erosion of our industrial base.” Moreover, the think-tank emphasises the need for the EU to demonstrate an ability to act decisively. The IW has, in any case, explicit doubts that Beijing will in fact resort to “serious countermeasures”, since “a trade war would further jeopardise China’s access to the EU market” at a time when the US and others are increasingly closing their markets to Chinese products.

China’s countermeasures

Whether or not this analysis is right may soon be revealed. In January, Beijing had already initiated an anti-dumping investigation against spirits from the EU, which could result in punitive tariffs. From January to November 2023, the EU exported around 1.57 billion US dollars worth of spirits to the China, 99.8 per cent of which came from France. At the beginning of the week came an announcement that Beijing is also investigating the import of pork products from Europe. According to EU figures, the value of pork exports to China now threatened by punitive tariffs totalled 2.5 billion euros in 2023.[15] It remains uncertain as to whether Beijing intends to take further measures. German Economy Minister Robert Habeck is visiting China from Friday and is likely to discuss ways of avoiding potential losses for German exporters.


[1] Fact Sheet: EU-China Vehicle Trade. acea.auto, June 2024.

[2] 40,9% der von Januar bis April 2024 importierten E-Autos kommen aus China. destatis.de 18.06.2024.

[3] Pkw-Neuzulassungen Mai 2024: E-Autos sind wenig gefragt. adac.de 10.06.2024.

[4] Global EV Outlook 2024: Executive summary. iea.org.

[5] Pkw-Neuzulassungen Mai 2024: E-Autos sind wenig gefragt. adac.de 10.06.2024.

[6] Fact Sheet: EU-China Vehicle Trade. acea.auto, June 2024.

[7] Zwischen Wunsch und Wirklichkeit chinesischer und deutscher Automobilhersteller. ing.de 17.01.2024.

[8] E-Autos „Made in China“: Mehrheit der Deutschen noch skeptisch. newsroom.mobile.de 13.06.2024.

[9] See also: Battle for the electric car market.

[10], [11], [12] Hendrik Kafsack, Gustav Theile, Niklas Záboji: Brüssel verschärft Zolldrohung. Frankfurter Allgemeine Zeitung 13.06.2023.

[13], [14] Jürgen Matthes, Edgar Schmitz: Konkurrenzdruck aus China für deutsche Firmen. Ergebnisse einer Unternehmensumfrage. IW-Report 30/2024. Köln, 11.06.2024.

[15] China: Antidumping-Untersuchung zu EU-Fleischimporten. handelsblatt.com 17.06.2024.