The European Union has approved tariffs of up to 35.3% on all kinds of electric vehicles (EVs) imported from China.
Reports say this decision follows a year-long investigation by the European Commission, targeting Chinese EV manufacturers for receiving unfair government subsidies.
The subsidies apparently distort the market and give Chinese manufacturers an advantage over European automakers.
France, Italy, Greece, and Poland supported the tariffs, while Germany, Hungary, Malta, Slovakia, and Slovenia opposed it.
Germany is concerned that this would hurt its car manufacturers, many of whom rely heavily on the Chinese market for exports and parts.
China’s reaction
The European Commission has left a door open for negotiations, saying the tariffs could be dropped if China addresses the EU’s concerns.
But China has already responded, calling the tariffs “protectionist” and threatening to retaliate with their own measures.
The Commission says any solution must comply with World Trade Organization (WTO) rules and be effectively enforced.
The newly proposed tariffs would add to the existing 10% duty that the EU already imposes on imported cars.
The highest rates (up to 35.3%) will primarily target Chinese EV manufacturers who didn’t cooperate with the investigation, while companies like Tesla, which produce cars in China but aren’t Chinese-owned, have a lower rate of around 7.8%.
A Volkswagen representative said the tariffs are “the wrong approach” and that a trade war with China could have damaging consequences.
The German Automotive Industry Association (VDA) also warned against escalation. Hildegard Müller, VDA’s President, called for both parties to reconsider this decision so as to avoid a full-blown trade conflict.
Implications for global trade
The prolonged trade war between the EU and China has some big global consequences. Beijing has launched investigations into European imports of brandy, dairy, and pork products.
This could result in a tit-for-tat scenario, where more goods get caught in the crossfire of the escalating tensions.
Spain’s Economy Minister, Carlos Cuerpo, called for the negotiations to remain open, hoping to prevent the tariffs from taking effect.
His letter to European Commission Vice President Valdis Dombrovskis asked for continued dialogue rather than enforcement.
Slovakia and Hungary also joined Spain in opposing the tariffs, arguing that they could hurt their economies.
China’s economic countermeasures
In the midst of this trade tension, China is dealing with its own economic issues.
During its Golden Week holiday, which was the 75th anniversary of the People’s Republic of China, the country launched many economic measures.
These included aid for the property industry, cash handouts for lower-income citizens, and increased government spending.
The People’s Bank of China (PBOC) also introduced several financial tools to support the stock market, which has been under pressure in recent months.
One of the main tools was a funding package worth 800 billion yuan (approximately $114 billion). This is for insurers, brokers, and asset managers to help them buy shares and stabilize the market.
The central bank is focusing on pushing banks to lend more and support the country’s economic recovery.
Two days after the PBOC’s announcement, Xi Jinping chaired an emergency meeting of China’s top leaders, known as the Politburo, where they promised to ramp up government spending and bring additional policies to support growth.
China’s stock markets reacted strongly to these. The Shanghai Composite Index jumped by more than 8% on the day before the Golden Week holiday.
This was the index’s biggest single-day gain since the 2008 global financial crisis. Over the course of five days, the index rallied by 20%.
The Hang Seng Index in Hong Kong followed suit, rising over 6% after the Shanghai markets closed.
