China may potentially impose retaliatory tariffs on car imports from the European Union amid the EU’s decision to raise tariffs on China-made electric vehicles, Kallanish learns. 

The China Chamber of Commerce to the EU (CCCEU) has suggested such a move would not directly affect the EV supply chain, but target ICE cars instead. Citing Bin Liu, chief expert at the China Automotive Technology & Research Centre and deputy director of the China Automotive Strategy and Policy Research Centre, the CCCEU says China may raise its temporary tariff rates on large engine vehicles, essentially petrol sedans and SUVs with engines larger than 2.5 litres to a maximum of 25%.

Current tariffs for these vehicles stand at 15%. If the speculation is confirmed by Chinese authorities, German automakers such as BMW and Mercedes-Benz would be affected. In this case, Germany could be hurt from two fronts – importing China-made BEVs to the EU and exporting EU-made ICE vehicles to China.

As a vocal opponent to the planned EU measures, Germany has warned of the risks of retaliatory measures. Robert Habeck, Germany’s vice chancellor and minister for economic affairs and climate action, is visiting China to try to smooth trade tensions. He is expected to hold conversations with Chinese government officials on provisional tariffs to be imposed on China-made EVs. 

“At present, some countries and regions have deviated from the concept of green development... These measures will only harm the interests of their own consumers and affect the global green transformation and efforts to address climate change,” comments Yadong He, spokesperson of China’s commerce ministry.

The EU is currently in negotiation with China on tariffs. If the parties cannot reach a solution, the provisional countervailing duties announced last week will be introduced from 4 July. They would be collected only if and when definitive duties are imposed. The ongoing anti-subsidy investigation, which ends on 2 November, has been harshly criticised by Chinese carmakers.

Despite the risk of some automakers being subject to up to 48.1%, the case of MG Motors’ parent company SAIC, tariffs may not stop the Chinese expansion in the European EV market

The move is unlikely to have any significant impact on the flow of China-produced vehicles into Europe, James Frith, head of Volta Energy Technologies’ European operations tells Kallanish.

“Today, Chinese automakers are applying an around 100% mark up on the price of an EV sold in Europe compared to the same model sold in China. So even with a 20-40% tariff, the additional costs associated with doing business in Europe, a Chinese automaker will likely still be able to make the same, or even a slightly higher margin, when selling EVs in Europe,” he says. “However, these tariffs will mean that Chinese OEMs cannot significantly undercut the price of an EV produced in Europe.”

In April, think tank Rhodium Group suggested that “much steeper duties for around 45% or even 55% for fiercely competitive producers like BYD, would probably be necessary to render exports to the European market unappealing on commercial grounds.”

Germany is the largest producer of cars and parts among EU countries, accounting for around 25% of all passenger cars manufactured and almost 20% of all new registrations, according to Germany Trade & Invest. China is a key trade partner for Germany’s automotive business. One out of every three cars produced by German corporations worldwide is sold in China, according to the German Association of the Automotive Industry (VDA).