German carmakers such as Volkswagen and BMW are increasingly warning of the possible adverse effects of EU tariffs on the competitiveness of the European auto industry, as well as on their own operations in China.
German carmaker Volkswagen recently condemned EU plans to impose import tariffs of up to 38% on Chinese electric vehicles, stressing that this would have adverse effects on the European car industry.
The company stressed that this would undermine the competitiveness of European carmakers in the long term.
The EU announced these tariff increases back in June, citing concerns about Chinese electric vehicle manufacturers receiving government subsidies that allow them to sell their vehicles at unfairly low prices in the EU compared to European carmakers.
This was based on a nine-month EU investigation into Chinese subsidies under the Foreign Subsidies Regulation (FSR).
These new tariffs include a 19.9% ​​duty on Chinese EV maker Geely, a 17.4% tax on BYD and another 37.6% duty on SAIC. These are on top of the 10% tariffs already subject to car imports from China, which took effect on July 5.
However, European and especially German carmakers such as BMW and Volkswagen have now struck amid fears they could face retaliatory tariffs from China on their extensive Chinese operations.
Currently, Western automakers in China such as Tesla, Audi, BMW and Mercedes-Benz are enjoying benefits such as lower tax rates, grants, easier access to capital, lower land costs and competitive lithium battery prices.
If these benefits dry up in the event of an escalating trade war between the EU and China, it may also force these European companies to change their overall business models, especially if they are forced to look elsewhere to set up alternative manufacturing facilities.
This could be a particularly significant blow to European EV makers, which have already seen demand fall due to their higher prices and the lure of cheaper Chinese EVs.
In addition, the Chinese market is one of the largest consumers of German vehicles with an internal combustion engine. A decline in Chinese government favors would also make it harder for European automakers to continue to exploit one of their key markets.
Both European carmakers and environmental groups have also pointed out that tariffs on electric vehicles are likely to further slow the EU’s environmental and net-zero goals. That’s because, as China’s affordable EVs keep getting more expensive and consumers still struggle with the rising cost of living, fewer people are likely to buy EVs in the first place.
Could EU tariffs lead to a trade war between the EU and China?
There is also the very real possibility that China will impose retaliatory tariffs on other European industries, escalating current tensions into a full-blown trade war. China has already warned it will impose special tariffs on goods such as EU imports of pork, dairy products and brandy.
Regarding the recent investigation into the EU’s Foreign Subsidy Regulation (FSR), the Chinese Chamber of Commerce in the EU (CCCEU) said in a statement: “The FSR has been weaponized by the EU and operates as a form of economic coercion.
The FSR can also investigate subsidies received by subsidiaries from parent companies in another country, usually the company’s home country. In this regard, the CCCEU stated: “This approach inherently disadvantages European subsidiaries of Chinese investors and deprives them of equal treatment compared to local bidding enterprises.
“Such discriminatory practices against Chinese companies not only dampen their enthusiasm to participate in EU tenders, but also create a lose-lose scenario for both sides in terms of business cooperation, M&A and greenfield investment.
“We urge the EU to objectively recognize the contribution of Chinese companies to Europe’s green transformation and social development and ensure that Chinese businesses are provided with a fair, just and non-discriminatory environment in which to operate.