The EU has notified Beijing that it intends to impose tariffs of up to 38% on imports of Chinese electric vehicles, triggering duties of more than €2bn (£1.7bn) a year and a likely trade war with China.
The tariffs will be applied provisionally from next month in line with World Trade Organization rules, which give China four weeks to challenge any evidence the EU provides to justify the levies on imported EVs.
The charges come on top of the existing 10% levy on cars imported into the EU, meaning Chinese-made electric cars face total tariffs of up to 48%.
China immediately hit back, promising to “resolutely take all necessary measures to firmly defend the legitimate rights and interests of Chinese companies”.
The move follows a nine-month investigation into alleged unfair state subsidies into Chinese battery electric vehicles (BEVs), including top brands such as BYD, Geely – part owner of the Swedish brand Polestar – and Shanghai’s SAIC, which owns the British brand MG and has a joint venture with Volkswagen in China.
In a statement, the EU said: “The provisional findings of the EU anti-subsidy investigation indicate that the entire BEV value chain benefits heavily from unfair subsidies in China, and that the influx of subsidised Chinese imports at artificially low prices therefore presents a threat of clearly foreseeable and imminent injury to EU industry.”
Under the plan, Brussels will apply five levels of tariffs. EV manufacturers that cooperated with EU investigators will face a tariff of 21%, while those who did not will be hit with the top tier of 38.1%.
The MG owner, SAIC, faces the top tariff. Geely, which owns a stake in Volvo, faces a tariff of 20%. A 17.4% duty will be applied to BYD brands, which include the Dolphin and Seal cars launched in the EU last year. The tariffs could come in as early as 5 July, adding a potential €5,250 to the cost of a €30,000 entry-level BYD car.
In theory it means that a Volkswagen car produced in China but sold in Europe could be more expensive than a BYD brand, but officials said research showed the German manufacturer’s Chinese products were not sold in Europe.
Officials said Chinese-owned car plants in the EU, including a planned BYD factory in Hungary, were not included in the scope of this investigation, underlining the EU’s preferred trade strategy of creating jobs in the bloc.
It is understood that Tesla cooperated with the EU and may initially face the 21% tariff. The EU indicated this could be revised next month to its own individually calculated duty rate after assessing evidence submitted by the US company.
The EU vice-president Margaritis Schinas said the provisional results of the investigation showed the car production in China benefited from “unfair subsidisation, which is causing a threat of economic injury to EU battery electric vehicles producers”.
The investigation by the EU presented to China on Wednesday included data showing “injury” and “threat” to the European car sector. It claims the EU’s transition from combustion engines to BEVs has slowed because of the competition from China. If not addressed it would lead to loss of investment and jobs in a sector that employs almost 13 million people in Europe, sources said.
Schinas said the EU had “reached out to the Chinese authorities to discuss these findings and possible ways to resolve the issue”.
European manufacturers are bracing themselves for retaliatory measures. The value of all EU vehicles exported is valued at close to €200bn in 2023, making China the bloc’s third most important market by share (%) after the US and the UK. The EU fully expects China to impose further counter-duties on exports from other sectors, ranging from French cognac to dairy products.
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The move heightened tensions in Germany, which wants to protect its exports to the massive China market. “The European Commission’s punitive tariffs hit German companies and their top products,” Berlin’s transport minister, Volker Wissing, posted on X, formerly Twitter.
“Cars must become cheaper through more competition, open markets and significantly better business conditions in the EU, not through trade war and market isolation.”
However, insiders say China’s overcapacity in car manufacturing is a live global issue that will be raised at the G7 leaders summit in Italy on Thursday.
The EU hopes to persuade other leaders that the response to China’s overcapacity in cars, steel and other items including solar panels and electric vehicle batteries needs to be “targeted”, limiting the harm to non-Chinese G7 member states.
Sources point to Joe Biden’s recent decision to slap 100% tariffs on Chinese EV imports and Turkey’s recent tariffs of 40%.
Those familiar with the subject also say there are worries among G7 members that overcapacity of Chinese production could hit emerging economies such as Brazil, Mexico and India.
The EU Chamber of Commerce in China, which represents the interests of European companies in the country, said that any tariffs levied must be “transparent and consistent with WTO rules”.
Sigrid de Vries, the director general of the European Automobile Manufacturers’ Association, said: “What the European automotive sector needs above all else to be globally competitive is a robust industrial strategy for electromobility.”