EU should avoid trade war over EVs

The dispute within the European Union surrounding Chinese electric vehicles has seen new developments. The European Commission's proposal to impose definitive countervailing duties on imports of battery electric vehicles from China has obtained the necessary support from EU member states for the adoption of tariffs on Oct 4. The high number of countries that abstained from voting was puzzling, because it included several countries that have sought closer relations with China in the recent past.

The protectionist tariffs were proposed in June by the EC, which claimed Chinese-made EVs were benefiting from government subsidies and thus enjoying an unfair advantage against EU carmakers. Beijing has denied having ever subsidized the EV industry, saying it "firmly opposes the unfair, illegal and unreasonable protectionist practices of the EU in this case, and resolutely opposes the EU additional countervailing duties on China electric vehicles".

The fact is that the EC has the exclusive powers to determine the bloc's external commercial policy, and, in this case, to ensure that its desired tariffs on Chinese-made EVs finally get off the ground.

The problem for the EU is that its number one car-manufacturing state, Germany, voted, understandably, against the proposal, since its giant auto companies such as Mercedes-Benz, Volkswagen and BMW have heavily, and profitably, invested in China. This has set German Chancellor Olaf Scholz of the center-left Social Democratic Party against his compatriot Ursula von der Leyen, whose conservative Christian Democratic Union is Germany's main opposition party.

Incidentally, the auto industry accounted for nearly one-quarter of Germany's total domestic industry revenue in 2022.

The Oct 4 vote hurts Germany's national interests, that is, the interests of both its carmakers (employers, employees and their families) and consumers that look for affordable, eco-friendly vehicles.

The EC said in its statement that the vote represents another step toward the conclusion of its anti-subsidy investigation. But it was quick to add that, "in parallel, the EU and China continue to work hard to explore an alternative solution that would have to be fully WTO-compatible…".

I believe the "price commitment "approach could be a way out of the conundrum. In this compromise solution, Chinese carmakers would have to commit to setting minimum prices for their EVs sold in the EU, and I hope the minimum prices would be low and acceptable to Brussels and Beijing.

As a German and EU citizen living in China's Macao Special Administrative Region, I can only hope that both sides will be able to hammer out a win-win deal by the end of this month.

The term "countervailing duty", that is, a duty levied on imported goods to offset the unfair price advantage the goods-making companies hold due to subsidies paid by the government of the exporting country is often little more than a euphemism for imposing punitive and/or protectionist tariffs.

German Finance Minister Christian Lindner of the pro-business Free Democratic Party responded to the troublesome outcome of the EU members' vote, saying the EC "should not trigger a trade war...We need a negotiated solution."

The auto sector accounts for 2.5 million direct and 10.3 million indirect jobs across the 27-member EU. Last year, Chinese-made EVs accounted for 19 percent of the European EV market, and analysts have forecast that the share could reach 25 percent by the end of this year.

But if this month's negotiations fail, the EU will impose extra tariffs on affordably priced Chinese-made EVs from Oct 31 for up to five years. Chinese-made EVs are already subject to 10 percent tariff.

The EU auto market is much more important to China than the US market because of which Washington's recent decision to impose 100 percent tariffs on Chinese-made EVs is politically annoying, but economically less so.

The EC's aim is to make it more difficult for Chinese automakers to compete in the EU, many of whose automakers are still struggling to catch up with their Chinese counterparts that have rapidly transitioned to EVs.

Instead of resorting to protectionism to cope with the competition from Chinese-made EVs, EU states' governments should do everything in line with World Trade Organization rules to help their countries' automakers expedite their development, especially in making EVs.

Protectionism hinders industrial modernization, a field in which the EU and other Western economies are lagging behind China. It's time Western economies rolled up their sleeves and learned from their competitors, including those in China, even on the price front.

Let's hope the last-ditch China-EU negotiations help the two sides to strike a compromise acceptable to both.

In today's fast-changing political, economic, strategic and environmental landscapes, a trade war between the EU and China is the last thing the world needs, not least because they are among the world's top three trading economies and their mutually beneficial trade relations still have a lot of potential. What we need most urgently today is free and fair, and mutually beneficial trade. But without the goodwill of all sides, this can never be achieved.

So I hope the EU's and China's negotiators will reach a mutually acceptable deal by the end of the month. I am sure car company employers, executives and workers, and consumers both in China and the EU would be grateful for their success.