EU tariffs on Chinese electric cars will create problems for us

A “wall” to China. Europe has decided to stop Beijing's competition on electric cars by imposing a series of additional duties on vehicles imported into the Old Continent. Beyond the retaliation immediately threatened by China, what will happen to the European production sector? “Companies will benefit in the short term and will produce more, but in the long term the industrial sectors that are protected from competition on the international market become weaker and, history shows, are swept away when the protection ends,” explains Paolo Manasse, professor Macroeconomics University of Bologna.

Europe has established (subject to new agreements with Beijing) an increase in duties on imports of electric cars from China of 17.4% for the BYD company, 20% for the Geely company and 38.1% for the SAIC company . For other producers, who collaborated in the months-long investigation, the duty will be 21%, while for those who did not cooperate the maximum rate will be 38.1%. Added to this is the 10% already existing for all imported electric cars (against the 15% applied by China to cars arriving in the country). The reason? Chinese producers, thanks to public subsidies, can sell in Europe even below the production price. Translated: distorted competition. Beijing is currently the largest exporter of electric cars in the world. In Europe in particular, the figure has gone from 57 thousand in 2020 to around 437 thousand in 2023. And 2035 is approaching, when for the European green transition diesel and petrol cars will have to be a thing of the past.

Is the answer to impose tariffs? Tariffs are basically a tax on imports. “They create a gap between the price paid by consumers, which increases, and the price received by Chinese suppliers, which decreases. Imported goods are falling and European consumers and Chinese producers are the ones affected. Since European companies are not subject to the tariff, they are instead the beneficiaries. The tariff is a kind of income transfer from Chinese companies and European consumers to European companies. But if we look at history, sheltering from competition has never served to develop a solid national industry. Just think of Fiat. In the short term it is true that it helps national production to increase, but in the long term it does not. The protected national industry weakens investments to compete and is then unable to stand on its own.” continues Manasseh.

It's Italy? “We are in a bind. On the one hand we have a very high demand potential, having a very old car fleet, but we also have a per capita income that is decreasing and therefore being faced with increased prices of electric cars (as an effect of duties) discourages sales. On the other hand, we have a weakened auto sector (think of the importance it had 40 years ago compared to now) and in decline and if we do not facilitate the irreversible transition we will weaken it even more and risk decline”, Marcello Messori, Professor of Economics European at Luiss.

Beijing is packing its bags to respond to the tariffs. Locating on the Old Continent, also for production, is the anti-duties strategy implemented. Chery will open a factory in Spain, as BYD does in Hungary. This localization of production on the European continent means employment for Europe. “Any foreign investment in Europe and in particular for Italy which is most lacking is positive. I don't think protectionist attitudes are needed, we need to take precautions for strategic security issues, but the car doesn't pose these problems. Foreign investments mean employment and the revitalization of a declining sector in our country. And it also means testing a technology which, whether we like it or not, is the one chosen by the European Union for the future”, continues Messori.

The duty range is a compromise, after months of discussions and investigations. “In the case of cars it is clear that there are no converging interests in the European Union. Germany has strong ties with China (its major automakers have projects with Beijing) and other countries, such as Italy, which conversely aimed for higher barriers. The compromise was favorable to Germany” explains Marcello Messori

European duties are far from the 100% imposed by the United States. But Europe risks much more. For example, most of the minerals needed for the “green deal” come from China and Beijing's retaliation could include a reduction in exports of all the components, such as batteries, necessary in Europe for the automotive and non-automotive industries. Alone. “I think that more severe measures, in line with those of the United States, would be very dangerous for the countries of the Union. We cannot make a “clean separation” with China, we must reduce our risks and take initiatives because China gives unacceptable subsidies to its production sector. But following the United States with closures that could lead to trade wars is not in Europe's interest”, concludes Messori. And so we arrived at the European “wall” against Beijing.