Trade tensions against China creating rifts in Europe 

Imran Khalid

Belgium (Brussels Morning) – The EU’s imposition of additional tariffs on Chinese electric vehicles (EVs) has sparked opposition from German officials and industry leaders, including Chancellor Olaf Scholz, who argue it undermines fair competition. The EU Commission, led by Ursula von der Leyen, initiated the investigation as a geopolitical move, coinciding with her potential re-election or NATO Secretary-General bid. This decision has exposed internal EU divisions, with Germany and Hungary opposing the tariffs, while France supports them to attract Chinese investment. The protectionist stance could delay Europe’s adoption of low-cost, low-carbon technologies and strain trade relations with China. Cooperation between China and Europe’s automotive industries, particularly in the chip sector, could offer mutual benefits. German Economy Minister Robert Habeck’s recent visit to China indicates Berlin’s effort to mitigate the tariffs’ impact, leaving France at a strategic crossroads.

Robert Habeck’s visit to China followed the EU’s announcement of additional tariffs on Chinese electric vehicles (EVs). Despite China’s decision to target pork and brandy instead of EU car exports, the move highlights internal EU divisions and the geopolitical ambitions of the European Commission under Ursula von der Leyen. This situation raises questions about the future of trade relations between China and the EU, as well as the implications for the European automotive industry.

EU Tariffs on Chinese EVs Spark Controversy and Geopolitical Tensions

Robert Habeck’s trip to China came as no surprise following the EU’s announcement of additional tariffs on Chinese electric vehicles (EVs). Given that China did not strike back against the EU’s exports of automobiles to China, but instead chose pork and brandy for anti-dumping investigations, it indicates that Beijing recognizes that Brussels cannot represent Berlin and Paris. As early as when the EU initiated anti-subsidy investigation on Chinese EVs, Germans from the government to industry insiders expressed opposition.

Chancellor Olaf Scholz even publicly stated that the German automotive industry would be able to compete with Asian car manufacturers. So why does Ursula von der Leyen not even give the German automotive industry a chance for “fair competition”? It should be noted that this is rarely seen in the history of the EU that it’s not the companies who applied for investigations, but the EU Commission led by Ursula von der Leyen initiated the investigation on its own. With a pre-established position and result, it only targeted China, which can be said to be just another “witch hunt”. 

The EU’s anti-subsidy investigation on Chinese EVs was launched in October last year. Ursula von der Leyen warned that the Chinese EVs would “flood” into Europe, which could destroy the automotive industry on the continent, just as the solar energy industry was almost destroyed a decade ago. Von der Leyen intended to use this investigation to further transform the EU into a “geopolitical” institution, which has been a core goal and achievement she has been pursuing since she took office. 

The timing of this investigation coincides with the change of the current EU Commission. Von der Leyen relies on this achievement to fully seek re-election or run for the position of NATO Secretary-General with the support of France and the United States. However, at what cost? Is it the tearing apart of the Eurasian continent due to trade conflicts? That’s not her concern. “Après moi, le délug”

Politically, there’s a significant rightward shift in the EU, and this change undoubtedly casts a heavy shadow over the tariff policy on China. The rise of conservative forces in Europe will inevitably use trade protectionism to protect their own industries. Economically, the EU hopes to protect its own automotive industry and related employment through this. In response, these member states have further strengthened their demands to protect their own automotive companies and related employment.

We can say that the EU’s move is currently completely catering to the fully right-wing populism, but what comes after the right turn? The last time Europe faced the storm of populism and trade protectionism was in Germany before World War II. Given China’s cost and technological advantages in EVs and wind power, the EU’s restrictions on Chinese enterprises and products will also delay its efforts in energy conservation and emission reduction, and in addressing global climate change, which is inconsistent with the EU’s recent ambitious claims of being a leader in global climate governance. 

EU Tariffs on Chinese EVs Deepen Trade Protectionism

It is worth noting that the trade protectionist policies initiated by the United States have also propelled the growing protectionism within the EU. In 2022, the United States introduced the Inflation Reduction Act (IRA), which provides up to $7,500 in tax credits for new EVs and loans for used EVs. This move has raised concerns within the EU about the impact on its own automotive industry and has led to the adoption of trade protectionist measures.

Meanwhile, the “trade war” and “decoupling” practices implemented by the United States against China in recent years have further intensified the EU’s concerns about its own industrial development and industrial security. Within a month ago, the United States announced an increase in tariffs on Chinese EVs from the previous 25% to 100%, and the European Commission immediately followed suit in ‘firing at’ Chinese EVs, which is hardly just a coincidence.

For a long time, China and Europe have maintained a “cold politics, hot economy” model of getting along, which means ideological difference does not affect both sides as important trade partners. However, this emotional prejudice will make the few “common topics” between China and Europe also become ‘cold’. Von der Leyen, who hyped up the Chinese EVs received “national subsidies”, seems to have forgotten that it was Europe itself that initiated the “subsidy era” in the field of new energy.

On February 1, 2023, von der Leyen officially launched the Green Deal Industrial Plan, which relaxed the restrictions on government subsidies to enterprises, which is usually prohibited by the rules of the EU single market people, goods, services and money can move around freely wihin the internal market). This plan was originally intended to improve Europe’s competitiveness in the field of clean energy, but it has led to discriminatory subsidies during actual implementation. According to statistics, the EU has provided €3 billion in subsidies to battery manufacturers. Currently, at least seven EU countries provide land subsidies for industrial investment, and at least eleven countries provide preferential loans to enterprises.

This EU tariff investigation has exposed the division within the EU, with countries like Germany and Hungary expressing opposition, while countries represented by France, which do not export their own cars to China, support the EU’s imposition of tariffs. In fact, Paris’s plan is to raise the threshold for Chinese EVs entering the EU market, forcing Chinese manufacturers to invest and set up factories in France. As early as the beginning of May, the French Finance Minister publicly stated that they welcome BYD to set up factories in France. 

Similar to France, those who support increasing tariffs on Chinese cars have communicated with Chinese officials and Chinese car companies through various channels to express their will to cooperate. For these countries, they are not opposed to Chinese EVs, but to the fact that they cannot benefit from them. They are opposed to Chinese EVs imported in whole. They hope that Chinese car companies will cooperate with them to set up joint ventures and factories in Europe to drive the development of their own automotive industry.

EU’s Tariffs on Chinese EVs: Protectionism and Missed Opportunities

Objectively speaking, this goal is not difficult to achieve. Before this tariff policy started, manufacturers such as BYD had already started to build factories in the EU, which is part of the overseas expansion of Chinese car companies. However, if Europeans use tariffs as a weapon to force the Chinese to set up factories in Europe, that is a different story. Can the EU’s automotive industry really develop if Chinese EVs are kept out of the door? 

The protective tariffs from the EU have achieved nothing but delaying the use of low-cost, low-carbon energy in Europe by a few years. The EU’s anti-subsidy investigations can’t solve the problems faced by the EU in related industries, but may further worsen the situation. After the anti-subsidy investigation, the EU members may have to buy Chinese EVs at higher prices. European consumers welcome electric vehicles at low prices, as well as low-carbon energy, only the EU will not be grateful for the reduced carbon dioxide emissions because of China, but has chosen a tariff war.

The cooperation potential between China and Europe’s automotive industries is far greater than the differences between them. With electrification and intelligentization, the proportion of the cost of chip in car prices will be increasingly higher. Although the Netherlands has photolithography technology and Germany has polysilicon, the lion’s share of the chip industry’s profits goes obviously to the United States and the non-European countries controlled by the United States such as Japan and South Korea. In this regard, China and Europe have common interests. China must develop its own chip industry, and with China’s production capacity, the chip prices will definitely be reduced followed by the increased proportion of Chinese chips in the global market, which is already a fact.

From January to May this year, China’s integrated circuit export amounted to RMB444.73 billion, a year-on-year increase of 21.2%, even exceeding the 20.1% of cars, becoming China’s second-largest industry with year-on-year growth. China has already occupied the popular mature process nodes of 28-40 nanometers. Most car chips use 28 or 40-nanometer chips, which means that cooperating with China to use Chinese chips can greatly reduce the production cost and gain a competitive edge over American and Korean cars.

If the European automotive industry can’t cooperate with China, in this game, Europe cannot participate as a player, but more like a bargaining chip. Robert Habeck’s visit to China is more like a signal that Berlin has reached a consensus with Beijing to “decrease the impact” while Paris is still facing choices. Now Toni Kroos has passed the ball to Kylian Mbappé, will he shoot?

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Imran Khalid is a reelance columnist on international affairs and I have been regularly contributing articles on international l affairs to some of the prestigious publications including the South China Morning Post, the Korea Times, the Jakarta Post, the New Straits Times (Malaysia), the Daily Sabah (Turkiye),the New Age (Bangladesh),the Oman Observer, the Guardian (Nigeria), the Ceylon Today (Sri Lanka) , the Geopolitical Monitor, the Manila Times, the AJU Business Daily and Mail & Guardian (South Africa) etc. He is based in Karachi, Pakistan.