EU to Impose Tariffs Up to 45% on Chinese Electric Vehicles

(Bloomberg) — The European Union voted on Friday to impose tariffs as high as 45% on electric vehicles from China, threatening a broader trade conflict with Beijing which has already vowed to protect its companies.

Shares in European automakers rose after the vote.

The European Commission, the bloc’s executive arm, can now proceed with implementing the duties, which would last for five years. Ten member states voted in favor of the measure, while Germany and four others voted against and 12 abstained, according to people familiar with the results.

The decision by the EU comes after an investigation found that China unfairly subsidized its industry. Beijing denies that claim and has threatened its own tariffs on European dairy, brandy, pork and automobile sectors.

The bloc is actively trying to reduce its dependencies on China, with former European Central Bank President Mario Draghi warning last month that “China’s state-sponsored competition” was a threat to the EU that could leave it vulnerable to coercion. The EU, which did €739 billion ($815 billion) in trade with China last year, was split on whether to move forward with the duties.

The EU and China will continue negotiations to find an alternative to the tariffs. The two sides are exploring whether an agreement can be reached on a mechanism to control prices and volumes of exports in place of the duties.

“The EU and China continue to work hard to explore an alternative solution that would have to be fully WTO-compatible, adequate in addressing the injurious subsidization established by the commission’s investigation, monitorable and enforceable,” the commission said in a press release announcing the decision.

China’s commerce ministry acknowledged the EU’s political will to continue negotiations while warning that the tariffs will “shake and hinder” the confidence of Chinese companies investing in Europe.

Europe’s car industry has been reeling from slowing demand and stiff competition in the world’s biggest automotive market of China, where local brands now dominate on electric vehicles. Volkswagen AG has caused consternation in Germany by considering shuttering factories there for the first time to cut costs.

After European carmaker shares took a beating in the past weeks following a barrage of profit warnings from manufacturers, including Stellantis NV, Mercedes-Benz Group AG and BMW AG, they recovered a bit on Friday’s tariff vote. The Stoxx 600 autos and parts index rose, but that’s because the news was already priced in, said Tom Narayan, an analyst at RBC Europe. The index is still down more than 10% this year — despite the ever-ascending Ferrari NV in the mix.

France’s Cognac lobby criticized the move, saying the government had abandoned them. Shares in Pernod Ricard SA fell as much as 1.8%, while Remy Cointreau SA lost as much as 3.1%. Diageo Plc, which has a Cognac and Champagne-producing joint venture with LVMH, was down 1%.

Chinese EV makers will have to decide whether to absorb the tariffs or raise prices, at a time when slowing demand at home is squeezing their profit margins. The prospect of duties has prompted some Chinese automakers to consider investing in factories in Europe, which might help them dodge tariffs.

A statement from Geely Holding Group Co., which controls Sweden’s Volvo and UK’s Lotus Cars, criticized the decision, saying it’s “not constructive and may potentially hinder EU-China economic and trade relations, ultimately harming European companies and consumer interests.”

The additional tariffs already have slowed Chinese carmakers’ momentum in Europe, with their sales plunging 48% in August to an 18-month low. The region is a desirable destination for the nation’s manufacturers because EVs sell in relatively high numbers and at much more robust prices than other export markets.

The share of electric cars sold in the EU that were made in China climbed from around 3% to more than 20% in the past three years. Chinese brands accounted for around 8% of that market share, as international companies that export from China including Tesla Inc. taking up the rest.

Still, Europe’s tariff hike will have a “minor impact” on Chinese manufacturers because the region accounts for only a fraction of their total sales, according to Daiwa Securities analyst Kevin Lau. Europe contributed between 1% to 3% of overall sales for BYD Co., Geely and SAIC Motor Corp. in the first four months of this year, he estimated.

A spokesperson for Volkswagen said in a statement Friday that tariffs were the “wrong approach” and wouldn’t improve European competitiveness.

“We appeal to the EU Commission and the Chinese government to constructively continue the ongoing negotiations for a political solution,” according to the statement. “The common goal must be to prevent any countervailing duties and thus a trade conflict.”

The large number of abstentions in the EU vote betrays unease in many member states about a possible trade war with China, even as key nations like France have said that the bloc needs to defend its own industries more strongly. German Economy Minister Robert Habeck warned earlier that imposing the duties could lead to a tariff war.

“It’s the right signal from the German government, which — in the interests of the economy, prosperity and growth — has backed the interests of the European and German automotive industry and its employees on such an important issue and voted no today in the EU decision,” Hildegard Müller, president of German car lobby VDA, said in a statement after the vote.

While Brussels has sought a level playing field for European companies, Germany’s automakers are concerned about blowback that could exacerbate challenges they’re already having in their most important market globally. Mercedes and BMW pressed Berlin to vote against the higher tariffs and urged the EU to negotiate with Beijing.

German automakers including Volkswagen, Mercedes and BMW would be hit hardest in a trade spat as China accounted for roughly a third of their car sales in 2023.

–With assistance from Jenni Marsh, Stefan Nicola, Petra Sorge, Michael Nienaber, Li Liu and Isolde MacDonogh.