European Commission President Ursula von der Leyen hinted at possible tariffs on Chinese electric cars on Wednesday when she kicked off her EP election campaign in Karlsruhe, Germany. The EU is currently investigating Beijing’s alleged unfair market practices of state subsidies for Chinese electric cars, and von der Leyen’s comments suggest punitive tariffs are almost certain to be introduced, according to the Politico article.
Von der Leyen emphasized that the EU supports competition, but takes tough action against dumping and unfair practices.
Sources in Brussels have already told Portfolio that they see China using methods that distort competition and threaten European jobs in three areas within the vehicle industry:
- Chinese car manufacturers can sell their products much cheaper than EU players due to the generous government subsidies they receive from the Beijing leadership.
- China completely dominates the supply chains, including the market for batteries and the raw materials required for them, so it can sell the raw materials and components needed for production to the European car industry at a premium.
- EU environmental protection rules are much stricter than China’s, forced labor is prohibited by EU laws, so companies in the Asian country may have an advantage in terms of costs, because they do not have to pay attention to all of this.
As we wrote about, the fight between European and Asian manufacturers is getting bigger and bigger, and the Chinese seem to be in the running, which, according to the arguments of the EU institutions, is roughly due to the three reasons above. In the EU, the German car manufacturers were the most opposed to the tariffs to be imposed, because they fear that China’s countermeasures will further reduce their share in the world’s currently largest car sales market.
Meanwhile, the French and Italian industrial players – who are practically not present in China – argue that without protective tariffs they will lose the European market, so nearly 1.5-2 million EU jobs will be at risk due to Chinese e-car dumping. On the other hand, the French (or, more recently, the Italian) lobby has pretty much convinced the Germans that this is a matter of survival for them as well – our sources summarized for us.
By the way, Von der Leyen tried to be careful in his speech on Wednesday evening, declaring that “we like fair competition, but not dumping. However, we don’t like China flooding the market with subsidized e-cars. We will take action against this”.
That he has addressed the issue so clearly in his election campaign, particularly in the German auto manufacturing stronghold of Baden-Württemberg, is likely to fuel speculation that the EU probe will be concluded before June’s European elections and that tariffs will soon be imposed.
However, the situation does not become really exciting for Germany either, but Hungary is put in a vise
an EU official told Portfolio. According to him, several EU risk assessments have shown that on the one hand the Chinese side is preparing to take countermeasures with protective tariffs on EU products, and on the other hand they are simply relocating a significant part of their production to the EU internal market in order to avoid import tariffs.
In this regard, the Hungarian government has become Beijing’s strongest partner: in addition to the fact that BYD will surely open a factory near Szeged, Great Wall Motors is negotiating the construction of a factory near Pécs.
Although on paper the Chinese manufacturers will in principle not be able to save on working conditions, according to the aforementioned lobbyists and the EU risk assessments, the other two problems would still pose a serious threat to the EU actors. The most important players in Chinese supply chains, the battery manufacturers, such as CATL or EVE, are also investing in Hungary. So they can also import the parts duty-free, which means that they still have the opportunity to import raw materials cheaply and then resell them to Chinese players.
More and more people are also demanding an investigation of the battery industry players in the case of state subsidies. Portfolio knows from EU officials – although the Commission has not yet given us official confirmation – that in their case they are also investigating how much their competitiveness is due to indirect or direct Chinese budget incentives. In recent years, even according to the data officially recognized by China, the e-car manufacturers and battery industry players preparing for Hungary have received several billion dollars in subsidies.
The question is to what extent the European Commission is ineffective against Chinese manufacturers investing in the internal market on the supplier and automotive side. In principle, the subsidy investigations and the new framework for the control of state subsidies (Foreign Subsidies Regulation) can be applied, if not fully, in such cases. However, their retort tools are limited, they can impose fines, or even decide to partially limit their activities in Brussels, but according to many, this would not necessarily bring competitive balance.
In any case, several people confirmed to us that important issues will have to be clarified in the Hungarian case: it is possible that, according to the government’s plans, the economy may gain a lot with the appearance of Chinese car and battery manufacturers, and even that the players here may increase in value due to the protective tariffs. But it is conceivable that China will lose its interest in Hungarian plants if the EU gets tough.
Cover photo: Ursula von der Leyen (CDU), President of the European Commission, speaks at the opening of the Hannover Messe at the Hannover Congress Centrum (HCC). Source: M: Michael Matthey/dpa.
