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Friday, July 12, 2024

Europe Tells China’s Carmakers: Get Ready to Pay Tariffs

The European Union took the next step on Thursday toward collecting new tariffs on Chinese electric cars, telling automakers to obtain guarantees from banks that they would be able to pay the taxes set to be made final in October.

The move was expected. The bloc had said on June 12 that it would impose additional tariffs of 17 to 38 percent on electric vehicles imported from China. An investigation by the European Union had found what officials in Brussels describe as unfair subsidies by the Chinese government for electric car manufacturers.

The Chinese government has denied that it subsidizes the industry. Beijing contends that low prices for electric cars made in China reflect vigorous competition and innovation instead.

The two sides began talks on June 22 to try to resolve the dispute. “We are continuing to engage intensively with China on a mutually acceptable solution,” said Valdis Dombrovskis, the E.U. trade commissioner.

The imposition of provisional tariffs requires automakers to provide European countries with financial guarantees of eventual payment, although they do not need to send money yet.

The provisional tariffs vary considerably by automaker based on the European Union’s estimates of the scale of each Chinese manufacturer’s government subsidies. The highest tariffs are being imposed on manufacturers that disclosed little about their subsidies, including a tariff of 37.6 percent on SAIC Motor. Lower tariffs apply to BYD, at 17.4 percent, and Geely, at 19.9 percent.

Tariffs for the American electric vehicle company Tesla, which makes cars in Shanghai for the European market but is ramping up production in Germany, will be calculated individually and might be imposed in the fall.

Automakers will need to guarantee that they will be able to make payment for vehicles that arrive in the European Union starting Friday, for a period that runs through October. However, the bloc must still determine in the coming months if the subsidies for Chinese cars have caused significant harm in Europe’s car market.

Worries are spreading among governments around the world that China is seeking to export its way out of economic difficulty as a housing market crash has made Chinese households less willing to spend. In May, President Biden quadrupled U.S. additional tariffs on Chinese electric vehicles, to 100 percent.

Turkey imposed 40 percent additional tariffs last month on gasoline-powered and hybrid gasoline-electric cars imported from China. Turkey had already put additional tariffs last year on China’s electric cars. On Tuesday, Canada began a trade investigation that could also lead to tariffs on electric cars from China.

Brazil is gradually raising tariffs on electric cars imported from any country starting this month, after a surge in imports from China early this year.

China has threatened to retaliate against the European Union. Its Ministry of Commerce said on June 17 that it had opened an investigation into whether pork from the European Union was being dumped in China at unfairly low prices. The case could result in tariffs on dozens of products, from pork chops to pickled pig intestines.

In January, the commerce ministry began a trade case against imports of Cognac and other European wine-based spirits that come mainly from France. The French government has been an early supporter of tariffs on electric cars from China.

China’s car industry has suggested that the ministry impose tariffs on large gasoline-powered cars imported from the European Union if the bloc puts tariffs on electric cars. China has a 40 percent sales tax on cars and sport utility vehicles with very large gasoline engines, almost all of which are imported from North America or Europe.

China also has a basic tariff of 15 percent on imported cars. Europe has a basic tariff for cars of 10 percent and the United States has a 2.5 percent tariff. The various tariffs now being drafted or imposed are in addition to these basic tariffs.

China is returning to the playbook that it followed during its last big trade dispute with the European Union, in 2013 over China’s shipments of solar panels to Europe at low prices. Back then, Beijing persuaded Germany to lead a coalition of E.U. member countries that blocked solar panel tariffs.

But it might be harder for China to stop the electric vehicle tariffs. Europe’s solar industry was decimated a decade ago after the union rescinded its tariffs. Few in Europe want electric car production to suffer a similar fate.

The European Union has also tightened its rules for countries to overturn tariffs. China would need to win over a majority of member countries in a final vote in October, and those countries would have to represent at least 65 percent of the bloc’s population.

Member countries will also hold a preliminary vote in two weeks on whether they support the provisional tariffs. But the vote is not binding on the European Commission, the bloc’s executive body.

Chinese automakers are starting to build factories in Europe to meet demand and avoid tariffs, following a strategy pioneered by Japanese automakers to bypass trade restrictions in the United States. “It’s just like what Toyota did in the 1980s,” said John Zeng, an analyst at GlobalData Automotive.

But China has a glut of car factories at home, with the capacity to build twice as many cars as are sold in China, which is the world’s largest car market.

The trade case has produced a split in Europe’s car industry. German carmakers have opposed the tariffs. They face steeply declining sales in China as Chinese automakers have gained market share at their expense. So German carmakers are increasingly exporting from their factories in China, including to Europe.

But auto parts manufacturers in Europe have tended to favor the imposition of tariffs, as big automakers like Volkswagen increasingly assemble cars from parts made by Chinese companies.

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