(Bloomberg) — The European Union voted Friday to impose tariffs as high as 45% on electric vehicles from China in an effort to heighten trade tensions with Beijing, according to people familiar with the process.
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The European Commission, the bloc’s executive arm, can now continue carrying out the tasks, which would take five years, said the people, who spoke on condition of anonymity. Ten Member States voted in favor of the measure, while Germany and four others voted against and twelve abstained.
The EU’s decision comes after research found that China has unfairly subsidized its industry. Beijing denies this claim and has threatened its own tariffs on Europe’s dairy, cognac, pork and car sectors.
The bloc is actively trying to reduce its dependence on China, with former European Central Bank President Mario Draghi warning last month that “China’s state-sponsored competition” was a threat to the EU that could leave it vulnerable to coercion . The EU, which traded €739 billion with China last year, was divided over whether to continue with tariffs.
The EU and China will continue negotiations to find an alternative to the tariffs. The two sides are exploring whether an agreement can be reached on a mechanism to control prices and export volumes instead of tariffs.
The European Commission, the bloc’s executive arm, has repeatedly said that any alternative to tariffs must have strict requirements, including alignment with World Trade Organization rules, address the impact of Chinese subsidies and be something the EU can rely on check compliance.
Why Europe is raising rates on cheap Chinese electric vehicles: QuickTake
The new tariffs will rise to 35% for EV manufacturers exporting from China. The new levies are on top of the existing rate of 10%.
Chinese EV makers will have to decide whether to absorb the tariffs or raise prices, at a time when declining demand at home is squeezing their profit margins. The prospect of tariffs has prompted some Chinese automakers to invest in factories in Europe, which could help them avoid the tariffs.
The additional tariffs have already slowed the momentum of Chinese carmakers in Europe, with their sales falling 48% in August to the lowest level in 18 months. The region is a desirable destination for the country’s manufacturers because electric vehicles are sold in relatively large numbers and at much more robust prices than other export markets.
The share of electric cars sold in the EU that are made in China has increased from around 3% to over 20% in the past three years. Chinese brands accounted for about 8% of that market share, while international companies exporting from China, including Tesla Inc., accounted for the rest.
Still, the European tariff increase will have a “small impact” on Chinese manufacturers because the region accounts for only a fraction of their total sales, Daiwa Securities analyst Kevin Lau said. Europe contributed between 1% and 3% of total sales of BYD Co., Zhejiang Geely Holding Group Co. and SAIC Motor Corp. in the first four months of this year, he estimates.
While Brussels has sought to level the playing field for European companies, German carmakers worry about a backlash that could worsen the challenges they already face in their most important market worldwide. Mercedes-Benz Group AG and BMW AG urged Berlin to vote against the higher tariffs and urged the EU to negotiate with Beijing.
German carmakers, including Volkswagen AG, Mercedes and BMW, would be hardest hit by a trade war as China accounted for about a third of their car sales in 2023.
–With help from Craig Trudell, Jenni Marsh and Stefan Nicola.
(Updates with voting details in second paragraph.)
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