Reuters reports that China has already told major automakers to refrain from investing in EU countries that support Europe’s new EV tariffs.
China got a bit of a late start in the EV market, but its investments in EV manufacturing are now starting to bear fruit, with the country’s manufacturers quickly catching up and overtaking Western automakers, especially on price.
As a result, Europe and the U.S. have recently imposed hefty tariffs on Chinese EVs, worried that their lower manufacturing costs will stifle domestic industry. Chinese EVs are already quite popular in Europe, but they are hardly sold in the United States.
Although the EU tariff vote passed easily, national voting patterns largely reflected concerns about retaliatory tariffs. As is often the case with tariffs, countries cannot simply impose restrictions without expecting a backlash.
This is why, for example, Germany voted against the final tariff even though it abstained in the first vote. German automakers have a lot of high-margin business in China, and retaliatory tariffs and consumer hostility toward foreign brands (which was already happening long before the tariff negotiations) have made it difficult for them to sell their cars. I was worried that people would stop buying it.
And China, in particular, has responded very effectively to tariffs with its own targeted retaliatory tariffs. In fact, they are already investigating EU dairy and wine products as potential targets for tariffs.
So today, the same day the new EU tariffs came into effect, Reuters reports that the Chinese government has told automakers to think carefully before investing in Europe, especially in countries that voted in favor or abstained. It is not surprising that this was reported. EU customs duties.
Several Chinese automakers, including BYD, Geely and XPeng, are already considering building factories in Europe to localize production and avoid tariffs. This is kind of the intended effect of tariffs, ensuring that foreign automakers invest in local production and local jobs.
But China wants to ensure that its investment money flows to countries that did not vote in favor of tariffs. BYD, for example, is currently building a factory in Hungary, which voted against the tariffs.
Meanwhile, countries like France and Italy that voted in favor of the tariffs are trying to attract Chinese companies to invest in building factories there. But the new directive will make the path to investment even tougher for Chinese companies if they follow government guidance.
This is probably not the only action China will take in response to EU tariffs, but only a preliminary one. However, this shows that China is willing to respond quickly to trade restrictions imposed by other countries.
At the same time, talks continue between the EU and China on a possible minimum price agreement to avoid tariffs. It was hoped that a conclusion would be reached before tariffs were imposed, but it appears that they will have no choice but to proceed.
Electrek’s view
As we have said many times before, tariffs on China are not the answer to winning the EV arms race. I think it is far better for countries to encourage domestic production than to discourage production abroad and the nasty side effects that come with the latter.
Additionally, tariffs can often lead to a sense of complacency among domestic manufacturers, encouraging them to ramp up production slowly over time to allow them time to ramp up production. Eventually you can return to your starting point. We saw this with Japan in the 70s and the steel and auto sectors, where emergency tariffs failed to stop Japan’s 50-year export domination (Japan was last year replaced by China as the No. 1 auto exporter). (It has just been dethroned as a country.)
So, despite China’s entry into the international automaking scene, much of the last year has been marked by automakers doing everything in their power to slow the adoption of EVs. They are scaling back production plans despite increasing demand for EVs, are pleading with governments to allow more pollution, and intend to use the “time” given by these tariffs wisely. Generally not shown.
At this rate, all Europe will get in return for tariffs is inevitable delays. They may still acquire some factories, but those factories will be owned by foreign companies rather than local factories. And this will be extremely painful for any industry that China decides to target with retaliatory tariffs, and will result in less competition and less competition for domestic consumers as car prices will rise due to these tariffs. This will lead to an increase in inflation.
I know I’m repeating myself (for over 10 years now…) but the real answer to this is that it’s gone now because of some inexplicable things that Western car manufacturers have done. Instead, they should have taken EVs seriously from the beginning. At the back. It should have started a long time ago, but as the famous (probably Chinese) saying goes: “The best time to plant a tree was 20 years ago, and the next best time is today.”
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