POLITICO — 2024-05-21
Automotive Industry
The die was already cast when Ursula von der Leyen announced an EU probe into market-distorting subsidies for Chinese electric vehicles last fall.
Despite all the warnings about protectionism and a looming trade war, Chancellor Olaf Scholz and top German officials have realized that they can’t stop the EU from slapping tariffs on Chinese electric cars.
Last fall, European Commission President Ursula von der Leyen announced a probe into market-distorting subsidies for Chinese electric vehicles, marking a significant hardening of the EU’s trade policy toward Beijing. Eight months later, there is little doubt left in Brussels and Berlin that sufficient evidence for such unfair state aid has been found.
The Commission is expected to impose preliminary anti-subsidy duties on Chinese EVs by early July 2024, but rules require the EU to already communicate such a decision to carmakers — and other parties like EU importers of Chinese cars — four weeks in advance, meaning that the announcement of the upcoming tariffs is expected to land in about two weeks.
Scholz’s government — driven by fears of Chinese retaliation — has warned repeatedly against imposing the tariffs, which the chancellor has described as “protectionist.” Earlier this month (May 2024), Economy Minister Robert Habeck said that “the German automotive industry in particular is very worried about this, because it is to be expected that the Chinese will then impose tariffs on German imports.”
The subsidy probe has also pitted Germany against France, with Paris worrying that cheap Chinese EVs could flood the European market and put French carmakers in the low- and mid-price segments under pressure. German carmakers, in contrast, sell more cars in the premium sector, where they don’t yet face strong Chinese competition.
Increasingly isolated
Yet German officials have noted that the mood among other EU countries has in recent months increasingly shifted in favor of the French position.
Across Europe, frustration is growing about unfair Chinese market practices, which are seen as a strategic tool to oust Western competitors and dominate world markets in a host of green technologies, from EVs to wind turbines, and to the production of green hydrogen.
Scholz’s visit to Beijing in April 2024, during which the chancellor tried in vain to convince President Xi Jinping to return to fair competition, has also led to resignation in Berlin, according to three people briefed on the trip who were granted anonymity as they were not authorized to speak on the record.
Finally, the recent quadrupling of US tariffs on Chinese EVs, which amplifies the pressure on Europe as it is one of the few major markets that remains open to Chinese car imports, only augments the likelihood of the EU also taking action.
“The pressure on Europe will grow as a result of the Biden administration’s decision,” said Reinhard Houben, the economic policy spokesperson of the Free Democratic Party (FDP), which governs in Germany in a coalition with Scholz’s Social Democrats and Habeck’s Greens.
“We must not tolerate unfair subsidy practices by the People’s Republic of China,” Houben added. “The investigation by the European Commission is, therefore, the right thing to do and must now be brought to a careful, but also swift, conclusion.”
Election campaigning
What’s striking is that von der Leyen, a German conservative who is now campaigning for a second term as Commission chief, has decided to turn the China subsidy probe into an active part of her re-election campaign.
The message: The EU takes action to protect its industries.
“We like fair competition. What we don’t like is when China floods the market with massively subsidized e-cars. We are taking action against that,” she told a campaign rally in Karlsruhe, in the state of Baden-Württemberg — a bastion of the German auto industry. She repeated the message at a convention of her party, the Christian Democratic Union (CDU), in Berlin.
The four-week advance notice period means that the announcement of car tariffs is likely to come just days ahead of the European election being held from 6-9 June 2024.
“We have to follow through now,” said Daniel Caspary, the head of the CDU delegation to the European Parliament.
While the expected tariff announcement by the Commission would only be preliminary and have to be confirmed by a vote of EU countries later this year to establish permanent anti-subsidy duties against China, one official familiar with Berlin’s position conceded that Scholz might struggle to rally enough support to block the final, definitive tariffs.
Doing so might require Berlin to team up with countries like Hungary, which has gained the dubious reputation of being Beijing’s proxy, and cause a direct clash with France. What’s more, the chancellor may lack agreement in his ruling coalition to vote against such tariffs, as Habeck has endorsed them — as long as the EU probe is done with sufficient scrutiny.
One EU diplomat said that the true battle over the car tariffs was already lost for Germany last September, the very moment that von der Leyen announced the anti-subsidy probe.
“Behind the scenes, there had been a battle going on between Berlin and Paris whether to announce this or not,” the diplomat said.
The fact that von der Leyen launched the investigation — which the Commission did on its own initiative and not based on a formal request by the industry — meant that her services had already gathered sufficient evidence beforehand that made them confident that the probe would lead to clear findings, the diplomat added.
“You don’t launch such a thing and then say, ‘Oh, sorry, we actually didn’t find anything.’”