POLITICO — 2024-06-11
Automotive Industry
Germany wants the EU to set tariffs on electric vehicles at a low level to avoid severe retaliation from Beijing.
Germany has launched an 11th-hour bid to avert a full-scale trade war between Europe and China, resisting French calls to hit Chinese electric vehicles with punitive duties.
With a decision by the European Commission imminent, both Paris and Berlin have ramped up their lobbying efforts — with conflicting messages on just how tough Ursula von der Leyen’s executive should get on Beijing.
The EU executive is expected to inform Chinese EV-makers on Wednesday of temporary duties resulting from its probe into unfair state subsidies. EU member countries would then vote this fall to confirm the duties — making it vital for von der Leyen to pitch them at a level that the bloc’s two heavyweights can live with.
The atmospherics around the announcement are fraught: Chancellor Olaf Scholz and President Emmanuel Macron both suffered heavy defeats in Sunday's European election. The French leader responded by calling a risky general election. Now, von der Leyen needs their support to secure a second term as Commission president.
For all the talk of an evidence-based solution that is compliant with global trade rules, it is “a political decision,” admitted one Commission official.
“It will be decided at the highest level, by the von der Leyen cabinet,” added the official, who was granted anonymity due to the sensitivity of the matter.
Another Commission official confirmed that the announcement was expected on Wednesday, 12 June 2024.
The EU now charges a 10% tariff on all car imports — below China’s 15%. Realizing that it won’t be able to avert the tariffs, Berlin is now pushing to keep them as low as possible, ideally on a reciprocal level that China also imposes on the EU — meaning 15%.
Two months after Scholz was widely seen to have kowtowed to Beijing, German Economy Minister Robert Habeck is expected to head to China next week (third week of June 2024) on a further damage-control mission.
Paris lobbied hard for the probe, which was announced by von der Leyen in her set-piece annual address last fall. And, despite Beijing’s threat to hit back at French cognac makers in an anti-dumping investigation, Paris wants much higher duties on Chinese EVs.
“Something around 20-30% would give European manufacturers some breathing space to accelerate their investments in the sector and maintain their market share in Europe,” Elvire Fabry, senior research fellow at the Jacques Delors Institute in Paris, said.
A French official resisted the suggestion that the decision was political.
“This is an objective investigation by the Commission. It is not a political negotiation,” the official said.
The weakest link
A decision on the Chinese EV duties was held back until after the European election, but under the strict timelines of EU trade investigations it can’t be delayed further.
The centrifugal forces at play as the EU negotiates its post-election transition will be welcomed in Beijing, which has long sought to prise EU countries away from Brussels.
“As long as individual member states are kind of played off each other like that, that is very much in Beijing’s interest and suits their interests more than European interest writ large,” Jacob Gunter, a lead analyst at China-focused think tank MERICS, said.
China has already warned it would target the EU’s agriculture and aviation sectors — two sensitive industries that France would be eager to shield. Should Beijing hit back, it wouldn’t be good news domestically for Macron, whose centrist alliance was obliterated by a resurgent far right in the European election.
Berlin may well be trying to avoid exactly that kind of tough retaliation. But its push for a mirroring tariff “undermines the legitimacy of the entire endeavor,” warned Niclas Poitiers, economist at Brussels-based think tank Bruegel.
Germany’s position was “problematic,” he said: While big German automakers still entertain good ties with Beijing, that’s not necessarily the case for smaller businesses, meaning “the German economy as a whole has an interest in a more assertive policy towards China.”
Over the past decade, BMW, Audi and Mercedes-Benz have sold 19.2 m cars in China, making up 30 to 40% of each automaker’s global sales, according to data from Schmidt Automotive Research.
Yet even the highest rumored duty — 25% — would not be enough to deter Chinese brands thanks to their huge cost and technology advantages. Chinese EV sales into Europe grew by 23%, to nearly 120,000 units, in the first four months of in 2024.
“They can lower their prices and continue to be competitive. We’ve seen that happen in France already,” Matthias Schmidt, a European auto analyst, said.