- Beijing suggests reducing tariffs on large-engine cars for German manufacturers.
- The move aims to encourage Germany to influence the EU to withdraw planned tariffs on Chinese electric vehicle (EV) imports.
In a strategic move to mitigate the impending European Union tariffs on Chinese electric vehicles, Beijing has proposed a lucrative offer to Germany’s luxury car manufacturers. According to sources familiar with the discussions, China has floated the idea of lowering its current tariffs on large-engine cars from Germany if Berlin persuades the EU to drop the proposed levies on Chinese EVs.
Currently, China imposes a 15% tariff on passenger vehicles imported from the EU. In a recent meeting, Chinese Commerce Minister Wang Wentao indicated to German Economy Minister Robert Habeck that these tariffs could be reduced if the EU retracts its plan to impose tariffs of up to 48% on Chinese EVs later this year. This proposal highlights China's attempt to use economic incentives to influence EU trade policies.
The EU’s stance on these tariffs stems from an in-depth investigation into China's substantial state subsidies for its EV industry. The proposed levies aim to level the playing field by offsetting these subsidies with equivalent tariffs. However, China's latest proposal reflects the geopolitical and economic tug-of-war between the EU and Beijing.
Germany, with its robust automotive sector featuring giants like Mercedes-Benz and BMW, stands at the center of this dispute. The potential reduction in tariffs on German luxury vehicles could significantly benefit these manufacturers, making the Chinese market more accessible and profitable.
While the European Commission and China’s Ministry of Commerce have not commented on these developments, the German Economy Ministry has refrained from confirming the details of the proposal.
Declining EV Subsidies in China
Deborah Elms, head of trade policy at the Hinrich Foundation, suggests that there is still room for negotiation. The EU might consider postponing the tariffs if significant progress is made in negotiations. This approach would provide both sides with more time to reach a mutually beneficial agreement.
In parallel discussions, EU Trade Chief Valdis Dombrovskis engaged in a “candid and constructive” video call with his Chinese counterpart. Both sides agreed to adhere to World Trade Organization (WTO) rules and base their engagement on factual findings. The EU emphasized that any negotiated outcome must effectively address the unfair subsidization by China.
A successful negotiation with Germany could set a precedent for other economies considering similar tariffs on Chinese EVs. Canada, for instance, is contemplating its own set of fees to align with the EU and US, where President Joe Biden has already announced a 100% tariff on Chinese EVs.
Chinese authorities have been exerting pressure through various channels, including threats targeting European products such as French brandy and Spanish ham, as well as German large-engine vehicles. This strategy aims to transform the dispute into a broader mercantile negotiation, attempting to fracture the EU’s unified stance by targeting individual member states.
Despite these efforts, the EU remains firm on adhering to WTO regulations. Any alternative solutions proposed by China, such as self-imposed export quotas, would need to comply fully with these rules.
Imminent Tariffs on Chinese EVs
Earlier this month, the EU informed Chinese EV manufacturers of the introduction of new provisional tariffs starting in July. These duties, initially backed by guarantees, will become definitive in November if no resolution is reached. Companies like SAIC Motor Corp., BYD, and Geely (owner of Volvo) are facing significant additional tariffs ranging from 17.4% to 38.1%.
China has condemned these measures as protectionist, threatening to retaliate with its own probes into European imports like pork and brandy. However, there is still hope that negotiations could lead to greater transparency on China’s industry policy funding or the withdrawal of subsidies deemed inconsistent with WTO obligations.
Scott Kennedy, a China specialist at the Center for Strategic and International Studies, believes that any significant developments are likely to occur close to the November deadline, with China potentially making a last-minute offer to avert the final penalties.