A warning of an economic Cold War is issued by Prime Minister Viktor Orban - thediplomaticaffairs.com

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Geneva, Switzerland

Politics World October 4, 2024

A warning of an economic Cold War is issued by Prime Minister Viktor Orban

Photo: Reuters

Viktor Orban, the prime minister of Hungary, has recently issued a warning about the European Union’s changing trade dynamics with China, citing the threat of an imminent “economic cold war.” EU leaders are preparing for a crucial vote on whether to slap high tariffs on electric cars (EVs) built in China. Chinese EV producers’ fears about unfair competition and market saturation have prompted the plan to impose tariffs of up to 45% over the next five years. Based on the idea that Chinese manufacturers profit from government subsidies, which enable them to sell electric vehicles at lower prices and might hurt European automakers’ ability to compete, the European Union is considering imposing tariffs. As the EU’s automotive sector moves toward electric mobility and contends with fierce international competition, this action is viewed as a component of a larger plan to safeguard it. That being said, the choice is complicated. The automobile industry contributes significantly to manufacturing production and creates millions of jobs, making it an essential part of the European economy. The application of tariffs may give European producers a buffer of protection, giving them some leeway to develop and compete on more fair conditions.

The tariff proposal has sparked a debate within the EU, reflecting differing national interests and economic priorities. Germany, the EU’s largest economy and Hungary’s main trading partner, has emerged as a notable opponent of the tariffs. Sources indicate that Germany will vote against the proposal, highlighting its significant economic ties with China. Germany’s automotive giants, such as Volkswagen, BMW, and Daimler, have substantial investments in China and benefit from the Chinese market’s growth.

Hungary, under Orban’s leadership, also expresses reservations. Orban’s warning of an economic cold war underscores concerns about potential Chinese retaliation, which could impact various sectors beyond automotive, affecting trade relations and economic stability. Should the EU proceed with the tariffs, the repercussions could be manifold. Economically, the immediate impact could be an increase in prices for Chinese-made EVs in Europe, potentially slowing their adoption. This could inadvertently hinder the EU’s broader environmental goals of reducing carbon emissions through increased electric vehicle usage.

Politically, the move could strain EU-China relations, leading to retaliatory measures from Beijing. China could impose counter-tariffs on European goods, affecting a range of industries and potentially igniting a trade dispute that could escalate beyond the automotive sector. Moreover, an economic cold war with China could push the EU to reassess its global alliances and trade strategies. As China strengthens its position in the global EV market, the EU might need to forge new partnerships or bolster existing ones to mitigate the impact of any trade disruptions.

The EU must strike a balance between the need for open markets and protectionism in order to navigate this complicated environment. In addition to protecting the automotive sector, the tariff decision aims to establish the EU’s strategic economic stance in a world market that is changing quickly. The EU must think about the wider ramifications of its decisions as it considers its next course of action. A more sustainable course of action might be provided by investing in domestic innovation and competitiveness while also having productive conversations with China.

By Sara Colin

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