The European Union’s decision to impose tariffs on Chinese electric vehicles has drawn considerable attention to how and when Beijing may retaliate, escalating the bloc’s most significant trade dispute with China in years. This move aims to protect European automakers from the influx of competitively priced Chinese electric vehicles that have been making rapid inroads into the market. However, this decision is likely to have far-reaching implications for EU-China trade relations and is already prompting concerns among various sectors across Europe.
With ongoing discussions, vital clues about China’s response can be found in the voting patterns of individual EU member states on the electric vehicle (EV) measures last week. Previously, Beijing threatened tariffs on EU brandy imports and launched investigations into pork and dairy products in reaction to such measures. This suggests that China’s retaliation may target different parts of Europe in varied ways.
“Those that voted ‘yes’ will certainly be less favorably viewed by Chinese investors,” said Deborah Elms, head of trade policy at the Hinrich Foundation, an Asia-based nonprofit organization dedicated to promoting sustainable global trade.
The EU countries voted on Friday to impose the tariffs, with ten member states in favor, five against, and twelve abstaining. In response, the Chinese Ministry of Commerce stated that these tariffs would undermine the confidence of Chinese enterprises investing in Europe. It pledged to “take all measures” to protect the interests of Chinese companies, according to a statement released shortly after the vote.
Pork and Dairy Among the Most Vulnerable Sectors
Deborah Elms anticipates increased scrutiny for key sectors like pork and dairy as Beijing considers its options for retaliation against the tariffs on Chinese electric vehicles. “Countries that voted ‘no’ may see increased investment and potentially avoid or minimize challenges to investment operations within China,” Elms suggested.
Among the sectors most vulnerable to China’s response are pork and dairy. Beijing has already initiated an anti-dumping investigation into EU pork imports. Should this lead to tariffs, the impact would be particularly felt by major suppliers like Spain, which abstained from the vote, as well as Denmark and the Netherlands, both of which supported the EV decision. The dairy sector is similarly at risk, with key EU suppliers to China including the Netherlands, France, and Ireland.
French cognac producers are also closely watching the situation unfold. In August, Beijing concluded an investigation into EU brandy imports, determining that dumping had occurred. However, in what was viewed as an attempt to de-escalate trade tensions with Europe, China opted not to impose provisional duties on brandy imports.
China has also hinted that imported cars with large engines could be another potential target for retaliation. Should tariffs be imposed solely on European exporters, they would mainly affect Germany and Slovakia, both of which voted against the tariffs on Chinese electric vehicles. In a clear indication of growing concern among German automakers, Volkswagen AG CEO Oliver Blume emphasized the threat of potential retaliation from Beijing after the tariff vote. Blume noted that any tariffs imposed on German cars would be a significant blow to the industry, impacting high-end brands like Audi, Porsche, and Lamborghini.
EU-China Trade Negotiations Remain in the Spotlight
With the stakes so high, Brussels and Beijing are expected to continue negotiating in an attempt to find an alternative to the tariffs on Chinese electric vehicles. Both sides are exploring the possibility of creating a mechanism to control export prices and volumes as a substitute for the tariffs. Such a deal, if reached, could potentially help ease tensions and prevent a full-scale trade war between the EU and China.
According to Deborah Elms, China will continue to use a combination of incentives and threats during these ongoing negotiations. Beijing has warned that if the tariffs on Chinese electric vehicles are implemented, the European Union risks losing significant investment from Chinese EV manufacturers. Moreover, the EU may miss the opportunity to transform its own automotive industry by denying itself access to competitive Chinese technology and investments. In an editorial, Chinese state media called for Europe to show its “sincerity” in the upcoming round of negotiations scheduled for October 7.
Henry Gao, a law professor at Singapore Management University specializing in Chinese trade and policies, offered a rather pessimistic view of the prospects for an agreement. “At this point, I’d say the possibility of reaching some agreement would be rather low,” Gao commented. “If the talks fail, I wouldn’t be surprised if China carries out major tit-for-tat retaliations.”
China’s potential responses could significantly affect European industries, from agriculture to automotive. By targeting imported cars with large engines, China could hit some of Europe’s leading automakers, particularly in Germany and Slovakia. Meanwhile, agricultural sectors such as pork, dairy, and even French brandy are at risk, depending on the trajectory of Beijing’s retaliation measures.
Impact of Retaliation on Chinese Electric Vehicles in Europe
The tariffs on Chinese electric vehicles have also created a sense of unease among European companies that have significant stakes in China. German automakers, for instance, face a double-edged sword. On one hand, they support the tariffs as a way to curb competition from cheaper Chinese EVs in Europe. On the other hand, they are wary of losing access to the Chinese market, which is crucial for many of their luxury car brands.
Volkswagen AG CEO Oliver Blume has openly expressed concerns about potential Chinese retaliation, emphasizing that tariffs on German cars would be a severe blow to the industry. Brands like Audi, Porsche, and Lamborghini would be directly affected, threatening jobs and investments in Germany and beyond.
Meanwhile, China’s warning that the EU would lose investment from Chinese electric vehicle manufacturers if tariffs are adopted is a strategic move aimed at putting pressure on Europe. Chinese EV companies have made substantial inroads in the European market, and their investment plays a critical role in supporting the region’s shift toward more sustainable transportation. Losing this investment could slow down the EU’s efforts to transition to electric vehicles, a key element of its climate goals.
As Brussels and Beijing prepare for a new round of negotiations, both sides are faced with a complex web of economic and political considerations. The outcome of these talks could set the tone for EU-China trade relations for years to come. Given the significant risks involved, a careful balance must be struck to avoid a full-scale trade war that could harm both economies.
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