European Union's Tariffs on Chinese EVs: Trade and Competition Concerns

Chinese EV imports to Europe soared, raising concerns and prompting proposed tariffs to protect local manufacturers.

### The Surge of Chinese EVs in Europe: Trade Tensions and Economic Implications
* 🚗 European imports of Chinese electric vehicles (EVs) **skyrocketed from $1.6 billion in 2020 to $11.5 billion in 2023**, reflecting a **significant market shift**.
* 📈 Although Chinese cars currently hold a small share of the European market, their presence in the EV sector grew from **1% in 2019** to approximately **15% in early 2024**.
* ⚖ In response to this influx, the European Union has proposed tariffs of **up to 36.3%**, in addition to the existing **10%**, to protect its automotive industry from what it views as **unfair competition**.
* 💰 Chinese manufacturers benefit from **substantial government support**, allowing them to produce EVs at costs as low as **$5,500**, while European competitors face production costs around **$20,000**.
* 🔋 The EU's tariffs target fully assembled EVs, but not crucial components like batteries, where **China dominates with over 80% of global production capacity**.
* 🌍 The tariffs are intended to "**level the playing field**," but they may hinder Europe's ability to meet its climate goals of **reducing emissions by 55% by 2030**, especially as the EU is reportedly **not on track to achieve these targets**.
* 🛠 Analysts warn that if tariffs are too high, it could **delay the availability of affordable EV models** in Europe, exacerbating the challenges of EV adoption in a market already struggling with **limited public charging infrastructure**.
* ⚠ The situation remains precarious, with **fears of retaliation from China looming**, as the EU must balance **protecting its automotive sector** while ensuring a **competitive and sustainable transition to electric vehicles**.

European imports of Chinese EVs surged from $1.6 billion in 2020 to $11.5 billion in 2023. Though Chinese cars are still a small share of the total European car market, Chinese and Chinese-owned brands grew from 1% of the EV market in 2019 to about 15% in the first half of 2024. The EU needs EVs to meet ambitious climate targets. China is producing millions of EVs far cheaper than everyone else. But the sudden rush of Chinese cars into Europe has instead caused worries. We've heard about this globalization story: that we have to integrate, we have to be free trade and so on. But that was easy to tell when China was not a big player and was not changing the rules of trade. The European Union has responded by proposing tariffs of up to 36.3%. That's on top of the existing 10% already levied on all imports. A final decision is expected by October 30th. Analysts say it is the highest profile EU trade

case against China in over a decade. Chinese EVs have several advantages, but one sticks out: government support. Chinese make no apologies about it. That's our game. We're state capitalists. We're going to own this industry. But problems abound. There are loopholes. The risk of retaliation looms. European countries have reportedly been divided on the issue, and some of Europe's own automakers, the ones the tariffs are meant to protect, oppose them. The EU says its tariffs are not meant to block Chinese EVs, but instead level the playing field. We're dealing with an economy in China where credit money is allocated by the state and not by the market, and the state picks sectors that they want to promote. And in that kind of economy, if you do that, you always get overinvestment, you always get overcapacity, you always get overproduction. And then that overproduction gets dumped on the rest of the world. Chinese manufacturers can make a car for about $5,500,

the cheapest a European can do about 20,000. That gap is explained by potential subsidies that the Chinese government is giving to its companies, but also it's explained by higher economies of scale, it's explained by lower labor costs and by the fact that when it's about electric cars, China, unlike the rest of the world, has already secured the supply chain for the batteries. The tariffs only apply to fully assembled EVs, not parts like batteries. China controls more than 80% of the world's battery manufacturing capacity, and cars made all over the world, including in Europe, rely on Chinese batteries. Tariff rates vary based on how much help an automaker receives from the Chinese government. Here, it is important to note that all this is being done according to rules set out by the World Trade Organization, both the EU and China are members. There are 166 countries total and there are rules. So if China is subsidizing its auto industry and European countries say that help is giving Chinese

companies an unfair advantage. It can impose tariffs to offset it. But first, it has to prove that China is actually breaking the rules and that that rule-breaking is harming European companies. It's not arbitrary. It's a calculation of the amount of harm that's been done. And as near as I can tell, the European Union has followed the rules. They also vary based on whether a company cooperatively discloses the subsidies it receives to the European Commission. This is why the tariff on Tesla cars is a lot lower than those placed on its Chinese brand rivals. It's an American company. Chinese were a lot more generous to indigenous Chinese companies. But even they are being tariffed at different rates. These tariffs could make it more challenging for Europe to meet its ambitious climate policy goals by 2030. It needs to reduce emissions by 55% below the levels they were at in 1990. That's just six years away. A report leaked earlier this year suggests the EU is

not on track, to put it mildly. The bloc needs to double the pace of reduction to meet the 2030 target. I don't think the tariffs would be too meaningful or impactful in terms of slowing down EV growth, but if the tariffs end up being too high and domestic or local European automakers can't offer the more affordable models, then we could see some delay. If there's not enough models that are cheap enough or within the price point that consumers want to buy them. I mean, the administration is wrestling with this dilemma right now. I mean, it's the same thing with solar panels. The Chinese have something like 84% of the global market in solar panels. If you want us to convert to solar energy, the best thing you can do is bring in as many panels as you possibly can and install them everywhere. And if you say Chinese panels can't come in, which we've done, you really slow down the transition.

The holdup to EV adoption in many markets like the US and Europe is, one: there's not as much public fast charging available, but two: there's not as many low-priced EVs. And those affordable vehicle segments where the majority of consumers buy vehicles. And that's exactly what Chinese firms have been able to do, sell cars for as low as about $10,000 in the case of the BYD Seagull. European manufacturers can't match that. Neither can American, nor Japanese, nor Korean. The US has imposed a 100% tariff on all Chinese vehicles. By the way. It did that just unilaterally, not through the WTO process. But even a 100% tariff on a $10,000 car is still far cheaper than the cheapest EV sold in the US. The European carmakers, they learned that they can make more money selling fewer cars. Last year, many of them posted records in terms of operating profits. This strategy of increasing prices and producing less

cars is good, as long as you don't have a more competitive rival, such as China. At the proposed rates, they might not do much to stem the tide of Chinese imports. One analysis showed that tariffs would have to be at least in the 40 to 50% range, depending on the company, the analysts said. These rates would be unlikely, and the EU would have to use nontraditional methods like tightening labor rights or cybersecurity requirements. The economic effects of tariffs are disputed. Many economists argue, they raise prices and reduce choice. Trump has said repeatedly, you know, we're going to put tariffs on the foreign country. The Americans don't pay the tariffs. The foreigners pay the tariff. That's, for the most part, wrong. There's a mountain of data to demonstrate that it's wrong. Others say these tariffs will have a negligible effect on EV prices over the long term. There are also loopholes. To try to get around US rules, Chinese automakers such

as BYD are reportedly striking deals to build factories in Mexico, though there is uncertainty around the exact timing. This whole...it's a constant cat and mouse game. You know, you cut them off, they'll go somewhere else and make the product and ship it in. From there, you cut them off, they'll move to a third country. So why is the EU doing this? Simply, it considers the European automotive industry crucial to its future. It employs millions of people and is responsible for nearly one out of every ten manufacturing jobs. Terrorists are a giant timeout that is just designed for one purpose in mind. Buy some time while we regroup and confront this massive automotive manufacturing machine that China presents us with. Over the last few decades, countries have leveled a lot of accusations against China: intellectual property theft, bullying trade partners, and so on. Even this sudden surge of vehicle exports fits a pattern. This goes back 30, 40 years.

And when their economy gets into trouble, as it is right now, they always do the same thing. They try to export their way out of it. The EU is pretty much the last among major developed markets in the world to enact new tariffs against Chinese EVs. This makes it harder for the Chinese to redirect exports to other countries. You can squeeze them out of the United States, and all that production will just go somewhere else, and it won't change the policy. What you got to do is get everybody together and all squeeze at once, make the Chinese eat the surplus. China already makes one out of every three vehicles sold in the world. It has the capacity to make about half. Industry after industry, they flood the zone. They introduce massive capacity in a given industry. And when I first went to China in the 1980s, it was buttons. They got really good at manufacturing buttons, better than everyone else in the world. And they soon had a monopoly. Today it's solar panels.

In the United States, various trade groups have already labeled Chinese automakers an existential threat. It's another proof that the European industry is not competitive yet. In a vote in Brussels in July, 12 EU member countries reportedly voted in favor of the tariffs, four against, and 11 abstained. Votes in favor reportedly included France, Italy, and Spain, and abstentions included Germany, Finland, and Sweden. The European Commission neither confirmed nor commented to CNBC, saying the vote was confidential. They would be the beneficiaries of the tariffs, but they're worried that they have a large investment in China, and tariffs put that investment at risk. So each company is going to decide which side of that line it's going to fall on. I mean, I don't envy them. They're in a difficult situation. German carmakers have substantial businesses in China. It is Germany's third-largest auto export market, after the US and UK. The European country has a trade surplus with China in

cars and in parts. On the other side, the French and Italian manufacturers are not exposed to China at all because they are more worried about their position in Europe, which is probably the most exposed to this increasing flow of Chinese competitive cars. And though the Chinese market has become a lot tougher for foreign companies, it is still a highly desirable place to build cars for export. Again, China is a huge battery producer and is responsible for much of the rest of the EV supply chain. If an alien were to come down to Earth today and say, I'm going to build a great car company to rival Tesla, where should I put it? There's no question what the answer would be. That alien would put their business in China because it offers the highest quality at the lowest cost with advanced technologies. And not only are the Chinese companies doing this, but global auto manufacturers are basing themselves there too. The other fear: retaliation. China has already filed a complaint with the WTO over

the US EV tax credits, and it has appealed the EU decision. My observation has been the Chinese always retaliate. Since at least May, the Chinese government has been proposing to raise an import tariff on gas-burning cars with larger engines. VDA, a German automotive trade association, says this would hit German carmakers especially hard. About a third of the roughly 200,000 cars German factories sent to China in 2023 had larger engines. Another 48,000 came from German-owned factories in Slovakia, Austria, and Italy. The more likely thing with Volkswagen or Daimler-Benz is, you know, a wave of inspectors suddenly hit their plants in China and discover 37 safety violations and shut the plant down.

Why EU’s Tariffs Won’t Stop Chinese EVs

Welcome to the official YouTube channel for CNBC. From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.

For real-time news updates from around the world, visit: http://www.cnbc.com

For CNBC's primetime TV lineup, visit http://tv.cnbc.com

For CNBC's International YouTube channel, visit: http://www.youtube.com/cnbcinternational

CNBC

European imports of Chinese electric vehicles (EVs) rose from $1.

5 billion in 2023, increasing their market share from 1% in 2019 to 15% by mid-2024.

3% on Chinese EVs in response to their sudden influx, with a final decision expected by October 30th.

Chinese manufacturers benefit from government support, lower labor costs, and economies of scale, while also controlling over 80% of the world's battery manufacturing capacity.

The Impact of Tariffs on EV Growth and Climate Goals

The European Union is imposing tariffs on companies benefiting from unfair subsidies, aiming to offset the advantage and harm caused to European businesses.

These tariffs vary based on the company's cooperation in disclosing subsidies and could hinder Europe's ambitious climate policy goals by 2030.

The high cost of EVs due to tariffs may delay their adoption, while Chinese firms' low-priced cars challenge European and American manufacturers.

The Impact of Chinese Competition on the Automotive Industry

Chinese imports pose a significant challenge to the automotive industry, with proposed tariffs unlikely to make a substantial impact.

Economists dispute the effectiveness of tariffs, arguing they raise prices and reduce consumer choice.

The EU's response includes nontraditional methods and factory deals in Mexico, while the automotive industry remains crucial to its economic future, employing millions and driving manufacturing jobs.

China's Dominance in the Global Auto Industry

China is struggling economically and is trying to export its way out of trouble, but the EU's new tariffs on Chinese EVs are complicating this strategy.

The country's massive production capacity has allowed it to dominate various industries, including solar panels and now, automotive manufacturing.

The EU's response to the Chinese threat has been mixed, with member countries divided on supporting tariffs, while German carmakers face a difficult decision due to their substantial investments in China.

Chinese manufacturers are not only producing cars for the domestic market but are also becoming a key player in the global auto industry, attracting foreign companies with their low costs and advanced technologies.

The increasing flow of competitive Chinese cars is causing concern for European manufacturers, while China retaliates against foreign policies, potentially impacting global carmakers.

The Chinese government's actions, such as raising import tariffs and increasing inspections, pose significant challenges for foreign auto manufacturers operating in the country.