EU seeks roadblocks for Chinese EVs without sparking trade war

BRUSSELS

The EU faces a delicate balancing act as it prepares to rev up taxes on Chinese electric cars to protect European industry, while steering clear of a U.S.-style showdown with Beijing that could spark a trade war.

Europe's automotive sector is the jewel in its industrial crown but it faces an existential threat from the looming end of combustion engines and China's head start in the switch to electric.

When Brussels launched a probe last year into Chinese electric car subsidies, officials said they wanted to put the brakes on what they claimed were unfair practices undercutting Europe's car manufacturers.

Beijing reacted angrily at the time, crying protectionism.

The EU has until July 4 to order a provisional hike in import duties on Chinese electric vehicles (EVs), currently at 10 percent, with the expectation it could make its move some time in June.

As anticipation builds, China has raised the temperature further with its own threats of duties. Europe's agriculture imports could be in the firing line.

Experts suggest Brussels could hike duties to between 20 and 30 percent, enough to discourage but not fully deter Chinese exporters, which research firm Rhodium Group estimates would require 40 to 50 percent tariffs.

That is a calculated move by European Commission President Ursula von der Leyen, who stressed the EU was planning "targeted" action, after the United States quadrupled its own duties on Chinese electric cars to 100 percent.

The EV standoff comes in a context of rising trade tensions between Beijing and Western countries, which are investing billions in the energy transition and accuse the Asian giant of unfair competition on everything from wind turbines to solar panels.

But the EU is carefully calibrating its steps.

"I don't think anyone in Brussels wants a full-blown trade war or technology war," said Jacob Gunter, senior analyst at China-focused think tank MERICS.

"But there's a growing recognition that something needs to change in the trade and technology relationships between the EU and China."

China is the world's biggest car exporter and Europe is a critical market.

EU imports of EVs from China mushroomed from around 57,000 in 2020 to around 437,000 in 2023, the U.S.-based Peterson Institute for International Economics said.

Their value rose over the same period from $1.6 billion to $11.5 billion, according to Rhodium Group.

Whereas the United States appears ready to risk a trade conflict with China, Elvire Fabry of think tank the Jacques Delors Institute sees key differences in Europe's strategy.

Washington's move is "based on a political priority to isolate China and slow down its technological development," she argued.

"The European approach is... based on facts established by an investigation" and aims to restore fair competition, Fabry said.