The European Union has taken steps to begin imposing tariffs on Chinese electric vehicles in addition to the existing 10% tariff on all imported vehicles. The decision has caused significant discussion about the probable consequences of the move in the automotive market and beyond in the general geopolitical perspective. The UK is yet to confirm whether they’ll be following in the EU footsteps regarding the tariffs.
There is an EU investigation now focusing on Chinese EVs to determine if Chinese EV companies take advantage of state subsidies that allow them to sell their vehicles at low prices in the European market. That process is regarded as unfair competition since, in most cases, it will be hurting the local industry.
These tariffs will run from 4th July this year, from 17.4% to 38.1%, depending on how much the Chinese companies cooperate during the investigation: it punishes less cooperative companies most, like SAIC.
Critics argue that these tariffs will have multiple negative impacts on European car buyers and, more broadly, on the EV market itself. These include the fear that tariff increases will be passed down to consumers through the price of Chinese EVs, which have proven instrumental in providing cheaper EV options for consumers. With EVs already priced at about 35% higher than their petrol or diesel equivalents, any further price escalation would make EVs further out of reach.
In the cheaper end of the market, choice is already limited: there are nine new electric car models below a list price of £30,000 (check out our top 3 most affordable EVs), against dozens and dozens of internal combustion engine models. Tariffs could curb these affordable options in the EVs of the EU and slow down the pace of the transition to clean energy.
This may threaten the competition, which drives innovation, and would result in lower prices for EV models. The exclusion of these Chinese brands might change the market dynamics since it has teamed up with European and UK retailers to offer quality, affordable products.
A move towards the electrification of vehicles from the internal combustion engine is hinged on open competition that begets innovation and gradual reduction of the “green premium” that comes with EVs. Limiting choice through tariffs could do just the opposite: slow down this transition and maybe affect the general adoption of EVs.
Some of the market effects that such tariffs would bring up include a possible reaction by China not just to tariff cars but possibly in other industries, leading to a trade war and exerting severe damages on the EU economy. This would cancel out any financial gain on the tariffs themselves and can set off a very perilous spiral of trade barriers. Major European automakers such as BMW, Mercedes, and Volkswagen also generate huge earnings from their investments in China. This sort of retaliatory tariff could potentially put these earnings at risk and jeopardise the financial position of these companies.
But the EU’s tariffs on Chinese EVs come with numerous potential risks and downsides: for instance, the increased vehicle prices, lowered options for consumers, and threats of economic retaliation could tip the benefits, such as those above, the other way. This is illustrative of the complex trade-offs involved in such a trade policy decision. Whilst the tariffs will come into affect from the 4th July, the decision will be debated with a final decision to be made in November to make the move permanent.
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