Why the EU wants to take action against Chinese electric cars and risks a trade war

The EU is aiming for state aid for Chinese electric cars. Last week, European Commission President Ursula von der Leyen announced an anti-dumping investigation into subsidies for car manufacturers from China. “The price of these cars is artificially depressed by huge government subsidies – this distorts our market,” said Von der Leyen. That is not acceptable. Global markets would be flooded with cheaper Chinese electric cars.

According to European Commission data, Chinese electric cars are typically around 20 percent cheaper than models produced in the EU. However, Chinese manufacturers sell their subsidized cars in Europe at a much higher price than in China to take advantage of their higher purchasing power. So far, European customers have only benefited to a limited extent from lower prices. Nevertheless, the share of Chinese electric vehicles in Europe is expected to increase from the current 8 to 15 percent by 2025.

A so-called anti-subsidy investigation by the EU could lead to, for example, punitive tariffs being levied. In the past, the EU had already imposed anti-dumping duties on solar panels from China, among other things.

German Economics Minister Robert Habeck (Green Party) welcomed the announcement of an investigation. The point is not about keeping powerful, cheap cars out of the European market, but about checking whether there are subsidies that unfairly distort competition, Habeck said.

China is going electric, Europe and the US are lagging behind

Thanks in no small part to generous subsidies, China has developed into by far the largest market for electric vehicles and electric car batteries. Numerous innovative start-ups have emerged that are building excellent electric-powered cars, according to industry experts.

China has been by far the most important market for electric cars for years.

The relatively low prices for electric cars in China have led to a real electric boom there.

With state support for electromobility, China wants to finally conquer the European car market, something that has never been possible in the era of combustion cars. Successes have been celebrated for a long time, especially in the home market, but exports have also increased rapidly recently. Thanks to the rise of electric cars, China will replace Japan as world car export champion by 2023, followed by Germany in third place. While Japan and Germany mainly export declining gasoline cars, Chinese car exports consist mainly of booming electric cars.

Punishment tariffs alone will not solve Europe’s problems

The German automotive industry believes that research alone will not solve existing problems. Long-term strategies are needed because the German and European location suffers from high energy costs, taxes, levies, levies and too much bureaucracy, a spokesperson for the Association of the Automotive Industry (VDA) said when asked.

The fact is: China is ahead of Europe and the US when it comes to electromobility.

China’s countermeasures would mainly affect Germany

The planned EU subsidy investigation against Chinese electric car manufacturers could backfire. A lot is at stake, especially for the German car industry, the director of the Center Automotive Research, Ferdinand Dudenhöffer, told the German news agency. The Germans, unlike the French, sell 30 to 40 percent of their cars on the Chinese market and would be the first target of countermeasures, he said.

Dudenhöffer warned of punitive tariffs: “If measures are taken against Chinese imports into Europe, we can expect with absolute certainty that China will respond. A break with China would seriously damage the German car industry.” The announcement from Brussels alone will cause anger among the Chinese.

A plan by the French car industry against VW, BMW and Co.?

Car expert Dudenhöffer suspects that the French car industry is behind the EU initiative. This is actually aimed at the German car industry. Stellantis and Renault have little presence in China, but fear strong competition from Chinese car manufacturers such as BYD on the domestic market. Therefore, Chinese countermeasures would hit Volkswagen and BWM much harder than, for example, Renault.

German car manufacturers initially expressed their own reservations. BMW announced that it would not comment on the announcement until concrete key points were available.

Europe is open to competition, but not to an unequal race to the bottom, Von der Leyen explains. “We must defend ourselves against unfair practices.” We have not forgotten “how China’s unfair trade practices have affected our solar industry,” Von der Leyen said. The production of solar systems has increasingly shifted to China in recent years. At the same time, she emphasized that it is essential to maintain dialogue with China.

China reacts with dismay

The Chinese government has reacted with dismay to the EU’s announced investigation into subsidized electric cars. China is concerned and dissatisfied with this issue, a Commerce Ministry spokesman said in Beijing on Thursday.

China assumes that the investigation measures serve to protect European industry. This represents “blatant protectionist behavior” that will seriously disrupt and disrupt the supply chains of the global automotive industry and have a negative impact on Sino-European economic and trade relations.

German car manufacturers under pressure

Regarding electric cars, the Chinese leadership set the goal of becoming a technological leader years ago. Dudenhöffer sees a clear technological lead among Chinese manufacturers. They would control vehicle construction, both in terms of costs and the all-important battery technology, much of which the Europeans have yet to develop.

At the same time, German car manufacturers are coming under heavy pressure from the competition, which is now sometimes superior. For decades they benefited from rapid growth in China and were happy with their huge sales of combustion cars there. But they have hesitated for too long in developing electric cars. Volkswagen recently had to give up the title of China’s largest car manufacturer to the domestic company BYD, which sells significantly more cars with electric drive. It’s probably little consolation that major rivals like Toyota, Stellantis or Ford aren’t doing better.

(oli/sda/awp/dpa)