European Union imposes tariffs on Chinese electric vehicles

At every meeting of international economic and financial organizations such as the International Monetary Fund, there are warnings that tariffs and other protectionist measures are fracturing the global economy, leading to slower or worse economic growth, including the formation of antagonistic trade blocs that have characterized the years 1930.

Models pose next to the BYD Seal 06 Dmi unveiled during Auto China 2024 in Beijing, Thursday, April 25, 2024. (AP Photo/Ng Han Guan)

But despite these warnings, which are repeated in the comments of financial and economic analysts, tariff barriers continue to be raised. The US has led the way with higher tariff barriers and controls on high-tech exports, initiated under the Trump presidency and significantly stepped up by Biden.

It is now being joined by the European Union, which this week imposed an additional 35% tariff on electric vehicles from China, on top of a 10% tariff already in place.

The new measures, which will come into effect next week, will last for five years. They were introduced on the basis that Chinese electric vehicle manufacturers were unfairly benefiting from state subsidies.

The Chinese government rejected the allegation of undue state support, saying it “will continue to take all necessary measures to resolutely protect the rights and legitimate interests of all Chinese companies.”

While subsidies and assistance are provided, as in other countries, the real reason for China’s increasing penetration of the EU market is that Chinese technology is more advanced and the cost structure is significantly lower.

That’s one of the reasons why the imposition of tariffs has met with major opposition from the German government and German automakers that are looking to partner with Chinese manufacturers to survive in the increasingly intense global industry battle. They also fear that the tariff measures will bring about retaliatory actions that will affect their markets in China.

The decision to impose the tariffs came after eight rounds of talks aimed at trying to work out a mechanism by which a floor price could be set along with the volume of Chinese exports. But talks have broken down, with both sides saying differences remain significant.

Further talks are to take place, with the EU accepting China’s invitation to send envoys to Beijing to see if agreement can be reached on these mechanisms.

The tariffs came as a result of an investigation launched by European Commission (EU) President Ursula von der Leyen, which was initiated last October. Their imposition has received considerable opposition within the EU. Of the 27 members, five, led by Germany and Hungary, voted against and 12 abstained. In the run-up to the decision, the Spanish government called for a “re-examination” of the plan.

But the panel decided to go ahead, which tends to indicate that geo-political considerations, not least alignment with the US economic war against China, rather than the issue of subsidies, played a considerable role.

Announcing the decision, EU trade chief Valdis Dombrovskis stuck to the line that it was all about China’s subsidies and unfair market practices.

He said that by “adopting these proportionate and targeted measures after a rigorous investigation, we are supporting fair market practices and for the European industrial base”.

“We welcome competition, including in the electric vehicle sector, but it must be supported by fairness and a level playing field,” said Dombrovskis.

However, the reference to the need to protect the “European industrial base” indicates at least one of the reasons behind the decision was that all the great powers were looking to develop their capabilities to transition to a war economy.

The divisions within the EU, which must be some of the most significant on trade issues in the Union’s history, were underlined by Germany’s comments. Hildegarde Müller, head of Germany’s auto industry association VDA, said the decision was “a setback for free global trade and therefore for the prosperity and growth of Europe”.

“The industry is not naive in its dealings with China, but the challenges must be resolved through dialogue,” it said in a statement.

A statement issued by the German Finance Ministry said that Berlin “represents open markets. Because Germany in particular, as a globally interconnected economy, is dependent on this.”

BMW chief executive Oliver Zipse said protectionism would only make cars more expensive for consumers and accelerate factory closures in Europe.

The interconnectedness of the global automotive industry was indicated by Roberto Vavassori, who stated Financial Times (FT) that “for many automotive suppliers, (the Chinese) are both their biggest threat and their biggest customer.”

The attitude of some major carmakers appears to be that as China develops more technologically advanced components, their best hope for survival in the increasingly intense global battle for markets and profits is not it is the erection of tariff walls, which raises costs and invites. revenge, but in developing a form of collaboration with Chinese manufacturers.

The lower cost structure is significant. The FT reported that major Chinese manufacturers are producing electric vehicles that are more technologically advanced than their European counterparts and 30% cheaper.

The speed of innovation, not just cost, is another factor. According to one estimate cited by the FT, Chinese companies develop new cars incorporating better technology and design in just one year, compared to four years in Europe.

The motivations behind the opposition to the tariffs by some of the major European manufacturers were indicated in comments to the FT by Andy Palmer, the former boss of the British firm Aston Martin.

He asked, “What did the Chinese do, what did the Japanese do, and what did the Koreans do when they were behind in technology? They collaborated. European industry needs to get the Chinese to locate in Europe and work with them, especially in battery technology, to catch up.”

For auto workers, across Europe and internationally, neither way is the way to go as they face a wave of job cuts and wage cuts.

Tariff increases will not protect jobs, but will be accompanied by the intensification of the exploitation of the remaining ones, which will be implemented by the union apparatus. Also, the efforts of companies to develop joint ventures or other forms of collaboration will involve a vast reduction in the cost structure, which will be achieved through reductions in jobs and wages.

The only viable perspective is one based on a socialist agenda, i.e. the struggle to seize political power and bring the giant global auto companies into public ownership so that the enormous advances in technology can be harnessed and developed for the benefit of all, rather. rather than increasing the bottom line.