Just before the vote to impose definitive tariffs on Chinese-made electric cars, several EU member states, including Germany, are trying to oppose this move. From a geoeconomic perspective, this is a mistake. If the EU wants to keep its agency and credibility in trade, it must be able to defend itself against unfair competition, as outlined in the Draghi Report.

In July 2024, the European Commission imposed provisional countervailing duties on electric cars made in China, averaging around 21 percent. These will only be imposed definitively for a five-year period if the Council takes a position on them. The principle of reverse qualified majority applies – to stop the tariffs, the votes of 15 member states representing 65 percent of the EU population are needed.

This decision is particularly significant as it coincides with the Draghi Report. In 400 pages, the former Italian Prime Minister and ECB President argues that the EU can only strengthen its competitiveness if it cleverly combines its different tools, such as trade and industrial policy.

This is particularly true in the field of electromobility, where the weakness of the European industry is directly linked to unfair competition from China. If EU member states, especially Germany, do not pull together on the issue of electric car tariffs, the EU risks falling further behind China and the USA in vital technologies and losing trade policy credibility.

In EU and WTO law, the hurdles for such tariffs are high, precisely to prevent political abuse. The European Commission’s decision follows a detailed anti-subsidy investigation based on company data. These show that electric cars produced in China have market advantages because of subsidies that are illegal under WTO rules.

Unlike other countries – such as the USA. which has imposed tariffs of 100 percent on Chinese electric cars, or Turkey, which has imposed an additional 40 percent on these vehicles, apparently without comparable investigations – the EU is planning a well-founded measure against unfair competition. This is relatively moderate in international comparison.

In recent months, the EU held talks with the Chinese government and electric car manufacturers to find an alternative solution. But after careful examination, an offer from Chinese automakers for price commitments to offset the subsidies was rejected by the Commission as insufficient. At the Brussels meeting between Chinese Trade Minister Wang Wentao and EU Trade Commissioner Valdis Dombrovskis on 19 September, no political agreement could be reached.

However, the Commission has extended the already expired deadline for the submission of price commitments by the manufacturers. If they present a sufficient offer, the Commission can stop the procedure. Otherwise, the next step is a vote of member states on the countervailing duties, which must take place before 31 October.

Currently, several member states, including Hungary, along with Germany and Spain, are actively trying to stop the tariffs. It is all too clear that the much-vaunted, urgent unity of the EU and its member states vis-à-vis China remains an illusion. China repeatedly manages to divide the EU on important trade and industrial policy issues – and the EU fails to stay united.

In Germany, it is the fear of retaliatory measures against the automotive industry, which is heavily dependent on business with China, that is driving Chancellor Olaf Scholz to oppose the tariffs. In Spain, it is the hope for a billion-dollar Chinese investment following Prime Minister Pedro Sánchez’s trip to Beijing in early September, as well as the protection of the Spanish pork industry. Meanwhile, Hungary has long played the role of a Trojan horse for Chinese interests in the EU.

If the member states, despite clear evidence of competitive distortions to the detriment of Europe, vote against the countervailing duties and instead prioritise particular economic interests over strategic goals, this would deeply shake the credibility of the EU’s trade and industrial policy agenda.

It would almost be an invitation to third countries if effective policy in the EU’s interest can be undermined via European capitals. This would send a strong political signal in the context of the increasing geopoliticisation of trade relations and efforts to de-risk from China as part of the economic security strategy proposed by the Commission in 2023.

There are indeed viable economic policy arguments against the countervailing duties. Tariffs on imported products do not in themselves create a competitive industry in Europe. They merely offset unfair cost advantages created by subsidies and are intended to enable real competition.

The period during which the tariffs are in place must therefore be used creatively and intelligently – by business and politics. If this fails, EU consumers will unnecessarily pay higher prices. Companies should therefore do everything they can to build and expand their competitiveness during this period. The Commission and member states should flank the tariffs with further measures to support local manufacturers and create favourable conditions – and coordinate more closely than they do at present.

However, the impression is that the member states working against the tariffs are driven by other, far less convincing reasons. The industries threatened by Chinese tariffs form strong and well-organised interest groups that neither Scholz nor Sánchez want to antagonise. But these considerations are not necessarily in the long-term European interest. Europe’s future should not be decided by individual sectors or even companies.

Those who argue against the tariffs underestimate the potential to meet China at eye level. Given the major structural problems – youth unemployment, the real estate bubble and an economy that struggles with weak domestic demand – as well as the uncertain impact of the US election on already strained Sino-American relations, China needs the EU and access to the European market. This means it is all the more important that the EU and its member states remain consistent on the tariff issue and do not jeopardise the EU’s credibility and capability to act in trade vis-à-vis China and others.

The EU will only remain competitive if it can simultaneously defend itself against competitive distortions by third parties – as the Draghi Report argues. At this political moment, putting the brakes on tariffs for electric cars made in China would send exactly the wrong signal.

This text first appeared in Europe. Table in German and English on 23 September 2024.

About the authors

Etienne Höra is Project Manager in the ‘Europe’s Future’ programme at Bertelsmann Stiftung. His focus lies on the EU’s trade policy in this geoeconomic age, as well as the consequences of China’s increasing assertiveness for the EU.

Cora Jungbluth is Senior Expert in the Europe’s Future Programme at the Bertelsmann Stiftung. Her research focus is on China, foreign direct investment and international trade, especially the role of emerging economies.

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