The European Union has voted to go ahead with its plan to impose tariffs on electric cars imported from China, despite recent moves by Germany to try to block the proposal.
China's EV production has increased recently, as the country's efforts to secure mining contracts and build its auto manufacturing base have borne fruit.
Along with that huge increase in EV production has come a rapid increase in EV sales in the country – and an increase in exports.
As those exports have reached international shores, audiences from Australia to Europe have found Chinese EVs to be a reasonable value proposition compared to domestic manufacturers, and sales have risen overseas as they have at home.
This has worried domestic European manufacturers, who find it difficult to match the low prices at which Chinese manufacturers are able to sell their cars.
The EU has accused China of “flooding” its market with these EVs, as well as unfair subsidy practices aimed at its local auto industry. (The EU also subsidizes EVs)
As a result, Europe decided to impose tariffs on Chinese EVs, with a sliding scale based on which manufacturers it sees the most in line with its investigation. Those numbers have been adjusted as negotiations continue, but currently range between 7.8% and 35.3%. This is much lower than the US tax, which was recently raised from 25% to 100% and took effect last week.
Europe votes to impose tariffs, over German opposition
Today, the European Commission took the final vote on the tariffs. 10 member states supported the plan, 12 did not vote, and 5 voted against, with notable opposition coming from the EU's most populous country and the largest car industry, Germany.
While the first vote passed easily with little opposition and many abstentions, including Germany, the country changed its stance and decided to oppose the tax in today's vote.
Germany had hoped to rally more nations to vote against the tax, but it would remain a tall order, requiring 15 countries and 65% of the EU population to overturn the previous vote. As of this week, it was clear that Germany would never get there.
At first glance it seems contradictory that the country with Europe's largest car industry would oppose a tax meant to protect the European car industry. But the reason for this is that German automakers sell a lot of high-quality and profitable cars to China, and they fear retaliatory tariffs of the kind that often arise when countries impose trade barriers.
China has been very effective in directing its retaliatory tariffs in the past. In response to the Trump era tariffs, China imposed a 25% tariff on US goods in 2018, which, among other things, destroyed the US soybean industry. China has already begun to investigate several sectors of EU products such as brandy, dairy products and pork, and related European industry groups feel “abandoned” by their governments in the face of this threat.
Despite the threat of tariffs, Chinese consumers have been looking inward as well, rejecting foreign products out of nationalistic sentiments as they feel that other countries are treating them unfairly.
So Germany is seeing how a Chinese tax on European cars could accelerate its decline in the world's largest country, displacing some 1.4 billion consumers.
Its voting may be a trick, however – an attempt to have their cake and eat it too. Germany may search protectionist effects of European tariffs, allowing them to continue selling to domestic consumers without being undercut by Chinese products, but also search China is thought to be trying to stop the tariffs, thereby reducing Beijing's desire to retaliate against poor little Germany which is doing its best to stop these tariffs.
European tariffs are also much lower than those recently imposed by the US, and Europe has been talking to Beijing and changing tariffs and may adjust further going forward. This could be another smart decision – by showing that it is more willing to cooperate with China than the US, and by imposing more “reasonable” tariffs, the EU can present itself as less extreme and thus less worthy of retaliation.
Electrek's Take
If you'd like to read 3,300 words about what I think about this whole tax idea, head over to my article “China Tariffs are not the way to win the EV arms race – do serious things about EVs.” I promise you it's great. Although the article is about US tax, most of it applies to Europe as well.
The truth is, pricing is popular, but it often doesn't work very well. We have many examples of this happening, and while “most economists agree” should not be a silver bullet rule for interpreting the world, in this case, I think they are generally right.
At best, I think these costs will provide a temporary reprieve for domestic manufacturers – which we have already seen they are very willing to use to delay their plans and put them back in exactly the same place they already were: in the background.
Meanwhile, what it does immediately is to raise prices for EU consumers, and reduce EU producers' desire or need to compete on price. At a time when every country in the world has recently suffered from inflation, making one of the things that households spend a lot of money more expensive doesn't seem very wise.
This will also make people less willing to replace gas guzzlers with new electric cars, which are cheaper to use, which means not only higher fuel costs for those families, but the resistance to higher climate and health costs due to the increase in climate change from use. those old cars.
So I don't see this as a smart choice. Germany finally got to the right decision here – but they could have used leadership earlier, instead of playing tactical games and trying to appear to be both sides.
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