(Bloomberg) — European Union member states will vote Friday on whether to impose tariffs of up to 45% on electric vehicles from China, a decision that could threaten to further raise tensions with Beijing.
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The vote comes after the European Commission, the EU’s executive arm, found that China has unfairly subsidized its EV industry and proposed tariffs to protect European companies.
If the measures are passed, there is a risk of retaliatory tariffs from China, the bloc’s third-largest export market. Beijing has condemned the move as protectionism and has threatened tariffs on European dairy, cognac, pork and cars.
Shares of Chinese EV makers have risen in recent weeks on China’s stimulus blitz and strong delivery figures in September, with XPeng Inc. and Li Auto Inc. have risen more than 30% in Hong Kong in the past two weeks. Yet they have fallen this year due to concerns about ongoing rates and increased competition.
The 27-member union was divided over whether to move forward with the aggressive trade measure. Germany has called on the EU to drop the tariff plan, with Economy Minister Robert Habeck warning it could lead to a trade war. French President Emmanuel Macron on Wednesday reaffirmed his support for the tariffs, saying the level of Chinese subsidies was “unbearable.”
EU rules say the European Commission can impose the new duties over the next five years unless 15 member states representing 65% of the bloc’s population vote against them.
If tariffs are imposed, Chinese EV makers will have to decide whether to absorb them 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.
Still, Daiwa Securities analyst Kevin Lau said European tariff increases will have a “small impact” on Chinese manufacturers because the region accounts for only a fraction of their total sales. 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.
The EU and China will continue negotiations to find an alternative to the tariffs despite the upcoming vote. The two sides are exploring whether an agreement can be reached on a complex mechanism to control prices and export volumes, used to avoid anti-subsidy tariffs.
An escalation of the trade war would hit hardest German carmakers, including Volkswagen AG and BMW AG, which sold a combined 4.6 million cars in China in 2022.
–With help from Catherine Ngai.
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