EU and America’s rules against Chinese Vehicles

This includes Western car companies such as Volkswagen and BMW. The Tesla Commission, which has a large factory in Shanghai, “received a separately calculated rate at the final stage” after making a “well-founded request” to the EC. Dombrovskis told CNBC “We could also look more deeply into the specifics of Tesla’s situation and the subsidies that Tesla in particular receives in China, which could indeed lead to different levels of countervailing duties.” In the end, Tesla’s commission “personal calculation” rate is 7.8%. The current import tariff for cars in Europe is 10 percent. After the resolution is passed, Chinese electric car makers will be blocked from entering the European market by ultra-high tariff barriers of up to 45%. The tariffs imposed by EU Trade Commissioner Valdis Dombrovskis are linked to how cooperative carmakers are with the investigation and the amount of information they provide.

Companies that are more cooperative and share more details will reap lower rates. The attitudes of the EU member states towards this resolution differed. Germany and Hungary expressed their opposition to the resolution on retaliatory tariffs. Germany is the largest economy in Europe and also has the major automobile manufacturers in the European Union, making it a major automobile country. Germany has said that China accounts for a large portion of the EU carmakers’ business landscape and that increased tariffs on Chinese electric vehicles will eventually shift costs to the EU’s own manufacturers. German Finance Minister Christian Lindner says Germany must vote against the tariffs.

The Associated Press reports that Germany’s automotive industry association, the VDA, says the German government’s vote against the tariffs sends “the right signal.” Its chairman, Hildegard Müller, sees this as “another step away from global cooperation.” Müller affirms the need for negotiations with China, saying that “escalation must be prevented – ideally avoiding tariffs. tariffs so that we don’t risk a trade conflict.” On October 4th, Müller told China’s Xinhua news agency that “trade conflicts only bring losers!” Germany is still trying to avoid a possible trade war between the EU and China through the bilateral level between China and Germany. Well-informed sources said the key moment German Foreign Minister Belbeck will visit China “in the next few days”, there are “a lot of things to discuss”. If the news is true, Belbeck’s return visit to China after a year and a half will provide an opportunity for China and Germany to exchange views on a variety of issues. Hungarian Prime Minister Viktor Orbán also opposed the tariffs. He warned that the move could lead to an “economic cold war” between the EU and China. This is the worst thing that has happened to Europe,” he told state radio…. If this continues, the European economy will die,” he said. Spain abstained in the vote. Spain’s Economy, Trade and Commerce Minister Carlos Cuerpo said the EU must continue to negotiate with China to find a solution and that “we want to have a positive and constructive relationship with China, one of our main strategic partners.” But Germany and Hungary’s opposition did not gain enough support. EU member states adopted the EC’s tax proposal by a final vote of 10 in favor, 5 against and 12 abstentions. The population of member states in favor accounted for 45.99% of the EU population. The five countries that voted against the resolution, Germany, Hungary, Malta, Slovenia and Slovakia, with a combined population of only 22.65 per cent of the European Union, did not reach the threshold to oppose the resolution. France is one of the members in favor of higher tariffs, and is the country that previously pushed the EU to open that anti-dumping investigation into Chinese electric cars. The country argues that Europe needs to protect itself from the impact on the industry chain brought about by China’s huge subsidies. In addition, Denmark, Ireland, Italy and nine other countries voted in favor. Governments in favor of the resolution hope that the tariffs, which will last for five years, will give the European auto industry room to breathe and grow. They can sell their own more expensive cars than China’s in the meantime and compete with Chinese EV offerings. The Financial Times reported the predictions of the non-governmental organization Transport and Environment. The organization says this will only work if the EU complies with limits on reducing carbon emissions next year. Many right-wing politicians and automakers have lobbied for a delay in lowering the threshold for average vehicle emissions. The threshold forces automakers to sell more environmentally friendly electric cars. The NGO published a study showing that Chinese electric cars should take about 25% of the market share this year. But this tariff resolution could bring that target down to 20% next year in 2025 and 18% by 2026. But if the EU accepts the lobbying and delays the 2025 emissions target, EU carmakers will likely focus on selling more profitable but carbon-intensive internal combustion engine vehicles. That could further boost China’s market share for electric cars to 27 percent next year. The organization said, “Higher tariffs on electric cars are the right thing to do, but they should just be in sync with automotive CO2 targets.” “They are part of a coherent industrial policy to boost electric vehicle production in Europe,” said Julia Poliscanova, senior director of the Transport and Environment Organization. “If the EU postpones its 2025 CO2 target while restricting affordable imports from China, it risks becoming the worst of both worlds.”

The adoption of the proposal immediately triggered controversy among all parties. The Chinese side took a firm stance against it. A spokesman for China’s Ministry of Commerce (MOFCOM) said China takes a consistent and clear position on the EU’s countervailing subsidy case against China’s electric vehicles, and resolutely opposes the EU’s unfair, non-compliant and unreasonable protectionist practices in this case, and resolutely opposes the European side’s imposition of additional countervailing duties on China’s electric vehicles. The spokesperson emphasized the contribution of Chinese EVs to the cause of global environmental protection and carbon emission reduction, “China’s EVs adhere to the market-led, based on full competition, and through continuous independent innovation, have increased the quality supply of the world’s green public goods, making an important contribution to the global response to climate change.” At the same time, the spokesman also emphasized that “the European side’s protectionist practices are in serious violation of WTO rules, interfering with the normal international trade order, not only hindering trade and investment cooperation between China and Europe, slowing down the EU’s own green transformation process, but also affecting the global joint efforts to deal with the climate change.”

When talking about the consultation and negotiation between China and the EU on the countervailing case, the spokesman said that “China implements the consensus reached by the leaders of the two sides, always from the perspective of safeguarding the overall situation of the comprehensive strategic partnership between China and the EU, and has always been adhering to the greatest goodwill to appropriately deal with differences through dialogue and consultation.” China and the EU have held more than a dozen consultations since the end of June on the electric vehicle countervailing subsidy case. On September 19, Minister Wang Wentao and EC Executive Vice-President and Trade Commissioner Dombrovskis held talks and expressed political will to resolve differences through consultations and agreed to open consultations on price commitments to avoid escalation of trade friction. However, China also noted the EU’s political will to continue to resolve the issue through negotiations, and technical teams from both sides will continue the talks on October 7th. The spokesman said China will take all measures to safeguard the interests of Chinese enterprises. Bloomberg quoted trade experts analyzing China and Europe into the “fight and talk” stage, is expected to be in favor of the tax hike on China in the EU member states will face the greatest risk. In 2023, the EU’s pork, dairy and brandy exports to China totaled about $10 billion. And China’s Ministry of Commerce has previously announced the launch of countervailing and anti-dumping investigations into imported agricultural products such as dairy products, pork and brandy originating from the EU. The report analyzes that China’s potential counterattacks against the EU will fall mainly on EU countries that support the tariff hikes. Yang Haiping, a researcher at the Central University of Finance and Economics (CUFE), analyzed that there is a reason behind the EU’s adoption of the proposed high tariffs on electric cars in China that the EU is experiencing difficulties in economic development.

Against the backdrop of not-so-optimistic economic development, the EU “has even shaken its determination to go green.” Yang Haiping said higher tariffs may promote Chinese EV companies to adjust their strategic planning, change the layout of the global supply chain, and promote the diversification and regionalization of the industry chain. Chinese electric vehicle companies may seek to establish production bases and supply chain systems in other regions. This will reduce the risk of Chinese car companies’ dependence on the EU market and further enhance the stability and resilience of the global automotive industry chain. In addition, the increased competition in the domestic market brought about by higher tariffs will further push Chinese EV enterprises to improve R&D investment and accelerate technology upgrading. Wang Peng, a researcher at the Beijing Academy of Social Sciences, analyzes the reasons behind the EU’s behavior to balance its relations with China and the United States. “Against the backdrop of increasing protectionism in the global economy, the EU is trying to balance its relationship with China and the US by imposing tariffs. On the one hand, the EU wants to maintain the pace of the transatlantic alliance; on the other hand, the EU has also taken into account China’s important role in the supply chain of electric vehicles, so its tariffs are set to weaken the price advantage of Chinese electric vehicles in the European market, rather than to exclude Chinese electric vehicles altogether.” The U.S. is working closely with the EU on anti-Chinese electric cars. The U.S. raised tariffs on imports of electric cars and other products from China in May. With the “tough on China” attitude becoming the “political correctness” in the U.S. political arena, the two presidential candidates, Trump and Harris, will also significantly increase tariffs on Chinese imports of electric cars.

EU car companies also expressed dissent to this countervailing resolution. Europe’s major automakers Volkswagen, BMW, Mercedes-Benz, etc. have expressed their rejection of this countervailing case, believing that it will cause a huge impact on the European automobile industry, a “fatal signal”. On October 4, Geely Group said “Geely Holding Group is very disappointed with the European Commission’s decision. The decision to impose countervailing duties is not constructive and will hamper the economic and trade relations between the EU and China, ultimately jeopardizing the interests of European businesses and consumers.” On the same day, Spanish automaker Siat, a subsidiary of the Volkswagen Group, strongly opposed the EU’s tariffs on electric cars from China. The company believes that this will jeopardize the European auto industry and that the decision to impose tariffs on Chinese electric cars is incomprehensible. “Seat and the entire European automotive industry will suffer significant negative impacts.” Volkswagen also said that “the common goal must be to prevent any protective tariffs and thus avoid a trade conflict.” The following day, Mercedes-Benz said it “strongly believes that countervailing tariffs undermine the competitiveness of an industry in the long run. Free trade and fair competition will bring prosperity, growth and innovation to all. Therefore, we believe that the imposition of countervailing duties, as drawn up by the European Commission, is a mistake, which could lead to far-reaching negative results.” Mercedes-Benz called on the European Commission to be cautious when taking sub-measures, “Today, more than ever, it is important that the EU and China should maintain a dialog and reach a negotiated solution that is in the interests of both parties. We are confident that both sides can find such a solution.”

On October 6, BMW Group also said that the anti-subsidy resolution is completely unworkable. It would limit the supply of electric vehicles on the European market, which in turn would slow down the low-carbon development of the European transportation sector. At the same time, the BMW Group believes that the EU’s approach not only fails to enhance the competitiveness of European carmakers, but may also harm companies that are active on a global scale. In addition, this practice also seriously undermines the free trade principles that the EU has always advocated “The result of the October 4 vote is an important signal for European cars about the fate of the industry. What is needed now is a swift rapprochement between the European Commission and China to prevent a trade conflict that benefits no one.” Bulgarian car dealer Anton Donchev said the victims of the tariff increase would be EU consumers and that “history has proved that this approach will not have a positive impact.” Many industry insiders are concerned that the EU’s move will affect countries’ efforts to combat climate change. The President of the Croatian Association of Electric Vehicle Drivers said that the imposition of tariffs is not conducive to healthy competition and green transformation of the European electric vehicle industry. Stefan de Guerra, CEO of Hassan Zammit Motors in Malta, argued that the tariff hikes would increase the burden on European consumers, slow down the penetration of electric vehicles, impede the EU’s ongoing transition to green technology, and could lead to some EU countries failing to meet electrification targets.

U.S. Issues Rules Restricting China’s Connected Vehicle Hardware, Software and Vehicles. On September 23, the U.S. Department of Commerce issued a Notice of Proposed Rulemaking proposing to prohibit the sale or importation of Internet-connected vehicles that integrate specific hardware and software from China or Russia in the name of protecting national security. The proposed rule would prohibit the importation and sale of hardware and software with links to China or Russia that are integrated into vehicle connectivity systems or automated driving systems. The proposed rule would apply to all wheeled vehicles on public roads, including cars, trucks and buses. A statement from the U.S. Department of Commerce said the software ban will apply to model year 2027 and later vehicles and will take effect in January 2029 or 2030. The Biden administration will draft a final rule after a 30-day public comment period and plans to make the ban a permanent policy before it leaves office on January 20 of next year. A senior U.S. government official said the proposal would ban virtually all existing Chinese light-duty cars and trucks from entering the U.S. market, but would allow Chinese automakers to seek “specific authorization” for exemptions to the ban.

China-based automobile companies are not the only ones that will be affected by this ban. Liz Cannon, head of the U.S. Department of Commerce’s Office of Information and Communications Technology, said that any car made in China and sold in the U.S. would be covered by the ban, including GM’s Buick and Ford-sold Lincoln, which are assembled in China and sold in the U.S. market. The ban is a major escalation of restrictions on Chinese automobiles. In early September, the Biden administration signaled that it would significantly raise tariffs on Chinese imports, including tariffs of up to 100 percent on electric vehicles and tariff hikes on key Chinese minerals and electric vehicle batteries. “When a foreign adversary builds software to create a vehicle, that means it can be used for surveillance and can be controlled remotely, which threatens the privacy and security of Americans on the road.” Commerce Secretary Gina Raimondo placed great emphasis on the impact of Chinese cars on U.S. national security, “In extreme cases, a foreign adversary could simultaneously shut down or take control of all of the vehicles they operate in the United States, causing crashes and clogging roads.” Although China exports relatively few cars and light trucks to the U.S., Raimondo said the U.S. Department of Commerce is taking action to pre-empt the risks posed by Chinese and Russian vehicles when they “fill our roads with cars.

Like the EU’s countervailing intent on Chinese electric cars, the U.S. ban on restrictions on China’s smart grid vehicles has been a long time in the making. The Biden administration is concerned about Chinese companies collecting data about U.S. drivers and infrastructure through connected vehicles, and the potential for foreign countries to manipulate vehicles connected to the Internet and navigation systems. In February, Biden ordered an announcement that he would investigate the potential dangers of Chinese-made internet-connected vehicles. In May, U.S. Commerce Secretary Raimondo previewed the U.S. government’s plan to issue rules governing China’s internet-connected vehicles this fall, and in August, Reuters cited people familiar with the matter who first disclosed some of the details of the proposed regulations.

The Chinese Government denied the United States allegation that China had embedded information technology in the United States infrastructure, and expressed its firm opposition to and strong condemnation of this United States action. Chinese Foreign Ministry spokesman Lin Jian answered questions from journalists at a regular press conference, stating that China “opposes the U.S. side’s generalization of the concept of national security and the adoption of discriminatory practices against relevant Chinese enterprises and products” and that it will “resolutely safeguard its legitimate rights and interests”. A spokesman for China’s Ministry of Commerce expressed firm opposition to the U.S. ban. The spokesman said that the United States acted in a typical protectionist manner and had no basis in fact. “In recent years, the U.S. side has imposed high tariffs on Chinese cars, restricted participation in government procurement, introduced discriminatory subsidy policies, and now, on the basis of the so-called national security, slandered China’s Internet-connected vehicle software and hardware and the entire vehicle as ‘unsafe’ and restricted its use in the United States.” The spokesman said that the U.S. approach “is a non-market behavior that uses government power to interfere with the economic and commercial cooperation of enterprises,” which not only violates the principles of market economy and fair competition, affects the normal cooperation between China and the U.S. in the field of Internet-connected vehicles, but also disturbs and distorts the global automotive industry chain supply chain and harms the interests of U.S. consumers.

By Weifeng Sun