Europe Imposes Higher Tariffs on Electric Vehicles Made in China

The tariffs, some as high as 45 percent, are intended to protect Europe’s automotive sector, but they could escalate a trade war with China.

Consumers in Europe may face higher prices for electric vehicles made in China after tariffs on the cars came into effect on Wednesday as part of an effort by European leaders to create what they call a level playing field for domestic auto companies.

The higher tariffs stem from an investigation the European Union started into subsidies provided by Beijing that helped carmakers in China produce and sell electric vehicles, giving them a competitive edge over their European rivals.

Chinese automakers, already forced out of the U.S. market because of tariffs levied against them there, have called the E.U. tariffs “protectionist” and “arbitrary,” arguing that their economies of scale have led to the rapid development of electric vehicle production.

The new tariffs, which come on top of existing import duties of 10 percent, vary based on the amount of subsidies each automaker in China received, starting at 7.8 percent for Tesla and go up to 35.3 percent for SAIC Motor of Shanghai. They are to remain in place for five years.

How will tariffs protect European carmakers?

The automotive sector is crucial to Europe, employing 13.8 million people and accounting for 7 percent of the overall E.U. economic output. But Europe’s automakers were slow to develop battery and gasoline-electric hybrid technologies for cars, instead spending decades focusing on trying to make diesel-fired combustion engines more efficient.

Only after Volkswagen was found to be cheating on its emissions in 2015 did the European automakers shift their focus to battery technology in earnest. By that time, Chinese car companies, including those like BYD that began as battery producers, had been working on electric cars for years.

The United States and Canada have both imposed 100 percent tariffs on electric vehicles made in China, but European leaders said they aim to slow imports of Chinese-made electric vehicles, rather than stop them altogether.

“Europe doesn’t want to hamper its own electric vehicle green transition by making Chinese cars prohibitively expensive,” said Emre Peker, a London-based director for Europe at the Eurasia Group, a private consulting firm.

The market share of Chinese-made electric vehicles in the European Union has jumped to more than 20 percent from around 3 percent three years ago, according to ACEA, a European auto industry group. A failure to impose tariffs would have resulted in significant job losses in Europe, a senior European official said this week.

A senior European diplomat, who spoke on condition of anonymity per diplomatic practice, said the tariffs were critical for protecting the European auto industry.

What Europe’s carmakers say about the tariffs.

European carmakers opposed the tariffs, with several countries, including Germany, home to BMW, Mercedes-Benz and Volkswagen, having voted against them. German carmakers have large investments in China and are concerned that the Chinese will retaliate.

Volkswagen has argued it was more important to maintain free and open markets than to seek to dampen competition.

“Under a tariffs regime, an industry only loses time,” Arno Antlitz, Volkswagen’s financial chief, told reporters in a call on Wednesday. The Chinese automakers “will sell cars from within Europe, he said.”

Carlos Tavares, chief executive of Stellantis, which owns more than a dozen brands including Chrysler, Fiat, Jeep, Peugeot and Ram, has also called the tariffs counterproductive.

“There should be no mistake these short-term actions will have negative mid- and long-term implications,” Mr. Tavares said. “The best way — the only way — to protect ourselves, our industries, our workers is to compete with the newcomers and raise ourselves to their game.”

How China has responded.

Chinese officials had hoped to avoid the tariffs, which they have called unfair. They have since charged that European producers of brandy, pork and dairy have dumped exports in China at low prices in violation of global trade rules.

Lin Jian, spokesman for China’s foreign affairs ministry, said on Wednesday that the European Union’s move would hurt the cooperation between the two sides, as well as Europe’s efforts to address climate change.

“This is a typical act of trade protectionism,” Mr. Lin said.

China’s auto industry has suggested that its government impose tariffs on large gasoline-powered cars imported from the European Union in retaliation.

What happens next?

The European Commission said that talks with China over a solution to the dispute would continue. The two sides have met eight times over the past year. But European officials say “significant remaining gaps” still exist.

European leaders said they were open to negotiating with individual car companies to set an agreed base price at which they could sell their cars in Europe. It was not immediately clear which companies would be involved in such talks.

Some Chinese automakers, such as BYD, have responded to the tariffs by setting up factories within the European Union or Turkey, which is within the European free trade zone. Leapmotor, another Chinese automaker, entered into a joint venture with Stellantis — owner of the French brands Peugeot and Citroen, in addition to Jeep and Chrysler in the United States — which will allow the company to produce its electric models in factories in Europe.

Claire Fu contributed reporting from Seoul.