EU member states should endorse tariffs on Chinese EVs or risk undermining European interests and agency

EU member states should vote in favour of imposing definitive trade tariffs on China-made electric vehicles on Friday (4 October), as China will never take seriously a Europe that can be divided and conquered by waving a stick at fearful member states, warns a group of high-profile economists.

The present article is authored by: Alicia Garcia Herrero, senior fellow at Bruegel and chief economist at Natixis; Francois Godement, resident senior fellow at Institute Montaigne; Jacob Gunter and Max J. Zenglein, lead analyst and chief economist at the Mercator Institute of China Studies; Jakub Jakóbowski, deputy director of the Centre for Eastern Studies; Björn Jerdén, director at Swedish National China Centre at the Swedish Institute of International Affairs; Janka Oertel, director of the Asia Programme at the European Council on Foreign Relations; and Dominika Remzova, China analyst at the Association for International Affairs.

EU member states are set to vote on the final tariff arrangement on imported electric vehicles (EVs) from China on Friday (4 October). The tariffs are based on investigations by EU officials to determine how much unfair support the Chinese system provides to EV makers. Leaders from several member states have come out against these measures, and in doing so are making a strategic mistake.

China’s industrial policy agenda has grown massively in recent years, and the extensive support measures of that system - subsidies, cheap loans, protectionism, free land, below-market inputs, R&D support, and others – are spilling over globally. These are not mere distortions to be addressed at the margins of trade policy but are scaled up impacts that are deeply warping markets globally.

The EU is not the only market stressed by the unprecedented pressure coming from China: Brazil, Canada, Chile, Egypt, India, Japan, Mexico, South Africa, South Korea, the US, and Vietnam either have or are drawing up their own measures on various imports from China.

The stakes are high, as more of Europe’s remaining core industries are at risk of being supplanted, just as China did with solar and rail in the past, is doing with EVs and telecommunications equipment today, and as it may do to aerospace and medtech in the future. Worse yet, these sectors are central to Europe’s green and digital transitions, and if they were to be undermined, so too would European autonomy to pursue those transitions on its own terms.

The automotive sector being at risk is especially worrying. There is no greater example of a pan-European industry. A handful of member states may be the origins of the existing European automakers, but those brands have assembly plants beyond their own borders, and their supplier networks are deeply integrated across the entire bloc. The challenges from imported China-made EVs are not borne solely by one or two member states, but are a common risk across the EU, and it should be pan-EU measures that respond.

One clear motivation for undermining the tariffs is fear of retaliation. But the logical endgame of a strategic posture shackled by fear of any negative consequences is perpetual inaction. Strategic autonomy and Europe’s derisking agenda require measures which will trigger Beijing’s threats.

Backing down will vindicate Beijing in its divide and conquer strategy. China will never take seriously a Europe that can be divided and conquered by waving a stick at fearful member states, dangling some carrots for compliant ones, and diplomatically sweet-talking others, including on Minister Wang Wentao’s recent European tour.

That this could happen at the very start of the new European Commission would greatly undermine China’s view of the EU and member states alike.

Instead, the EU should act from a position of strength. The EU is the last major global market that is overwhelmingly open to China, which sorely needs access to Europe’s market and technologies, as well as the massive European investment footprint in China. The EU can cement a powerful position for its future dealings with Beijing, but only if the member-states will empower it to do so.

And yet, even these tariffs are apparently a step too far for some. These measures use a WTO compliant instrument wielded in a targeted manner, are founded on unprecedented investigations, and have yielded targeted company-specific countermeasures. If this is too drastic of a step, then it is difficult to imagine what kind of solution would ever be acceptable to naysayers.

Tariffs are an uncomfortable choice but are the best of the incomplete options currently available in the EU trade toolkit. Under more flexible conditions other options which manage price undermining and market-crowding volumes could be pursued.

Price floors, quotas, agreements for greenfield investment, and other kinds of ironclad arrangements could be favourable. Major automakers across North America, Europe, and East Asia have demonstrated that a sustainable balance can be achieved through a hybrid model of exports and localized production. A future where Chinese automakers are induced to localize production, technology, and suppliers could be a welcome one.

But approving the tariffs first is critical. Doing so upholds the integrity of the single market, and demonstrates a position of pan-European strength that Beijing will find harder to outflank than 27 separate member states. Meanwhile, these measures can bolster market integrity and inhibit saturation by underpriced China-made imports, giving EU-made EVs the space to increase their competitiveness.

Importantly, they also set the conditions for future management of economic ties with China. In a positive future where the root causes in China driving today’s issues are resolved, reviews of the tariffs may find them no longer needed. But if the root causes worsen, a decisive stand today will be a firm foundation for the whole of Europe to respond to the problems China may create tomorrow.