The risk of the Europe-China electric vehicle trade war

The European Commission launched an investigation against Chinese electric vehicle subsidies, which could spark a trade war in this field, according to Politico.

While Chinese electric cars are landing, European Commission (EC) President Ursula von der Leyen on September 20 launched an anti-subsidy investigation on imports from this country. That is a step that risks leading to a new trade war between the bloc and the world's second economy, according to Politico .

"The global market is currently flooded with cheap Chinese electric cars. Their prices are low thanks to huge subsidies from the state," Ms. Ursula von der Leyen assessed. According to her, this is "distorting" the European market.

China's huge investments have helped it become the dominant manufacturer of electric vehicle battery technology. Global electric vehicle sales in 2023 are forecast to increase by nearly a third, to more than 14 million units, with a value of $560 billion. Some European politicians believe that without fair competition, the EU auto industry will lose.

According to market research company Canalys (USA), Chinese electric vehicles could account for 16.5% of total sales in Europe by 2025. Kevin Kang, Chief Economist at KPMG China, predicts the market share China's this year will reach 15%, as companies like BYD, Nio and Li Auto gain favor with consumers.

Cars lined up waiting for export at Yantai port, Shandong province in May 2023. Photo: Xinhua

The European Commission's move pleased French ministers. "I welcome the investigation. If these subsidies do not comply with World Trade Organization regulations, Europe must be able to fight back," said Economy Minister Bruno Le Maire.

Sharing his views at a joint press conference with Mr. Le Maire in Berlin (Germany) recently, German Economy Minister Robert Habeck also supported this decision. China has yet to comment, but the country's Chamber of Commerce in the EU posted on X (formerly Twitter) to express "strong concern and opposition" to the investigation. The post was reposted by Wang Lutong, head of the European department of China's Ministry of Foreign Affairs.

With China already controlling 60% of global battery production, the EC is concerned that if there is no response, Chinese companies will gain control of the electric vehicle market when both sides of the Atlantic commit to resolving pollution by gradually phasing out motor vehicles that use fossil fuels.

The US also has similar concerns. The White House wants Chinese technology ineligible for large subsidies aimed at jump-starting the electric vehicle industry under the Disinflation Reduction Act. But that's a problem, because even companies like Ford have to license their battery technology from China's CATL, which is the world's largest battery maker and has two factories in Europe.

Von der Leyen's announcement came less than a week after his meeting with Chinese Prime Minister Li Qiang in New Delhi (India). At that time, Mr. Cuong called on her to "support the principles of a market economy and fair competition, always open the trade and investment market, and provide a fair, transparent, non-discriminatory environment." discrimination for Chinese enterprises".

Ms. Von der Leyen's move gives EU Trade Commissioner Valdis Dombrovskis important leverage in negotiations with his Chinese counterparts when he visits Beijing on September 25. Dombrovskis expects China to reduce trade barriers on European exports, helping to overcome the growing bilateral trade deficit. This meeting is part of the preparation process for the EU-China Summit scheduled to take place later this year.

An EC spokesperson said the Commission opened its own investigation, not in response to business complaints. Sigrid de Vries, Director General of the European Automobile Manufacturers Association (ACEA), said the investigation was a "positive signal" that showed the Commission was taking the threat to the European auto industry seriously. "China's clear advantage and cost-competitive imports are impacting the domestic market share of European carmakers," she said.

But Ms. Von der Leyen's call is controversial. "I am concerned that the Commission risks a trade war with China in a very dangerous area," commented the leading campaigner of a major German brand.

Major German brands are heavily exposed to the Chinese market, possessing huge production capacity in China. Until recently, Volkswagen was the best seller there, while BMW and Mercedes dominated the premium car market. That means any retaliation from Beijing could be more difficult for Germany than anyone else. "From a business standpoint, this risks retaliation," another auto lobbyist told Politico.

German Economy Minister Robert Habeck said he took the German auto industry into account when he came to the conclusion that fair competition is important. "If this investigation uncovers serious violations of competition rules, of course we must take action," he said.

In addition to the controversy about the risk of sparking an "electric vehicle trade war", some experts believe that there is still no basis to clearly see that Chinese car manufacturers are invading the market by dumping cheap electric vehicles.

Matthias Schmidt, an independent auto analyst, said that in fact, Chinese businesses can still sell cars for profit in Europe at much higher prices than they offer in China, after considering costs. shipping and tariffs.

Additionally, while China's electrification strategy was developed with significant state support, the country's automakers are focusing their attention on the premium segment instead of cutting costs at the high end. popular segment.

"Don't forget that Volkswagen is successfully dumping in the Chinese market, when their ID.3 electric car model is listed here much lower than the price in Europe," said expert Matthias Schmidt.

After the European Commission officially started an anti-subsidy investigation, the EC's Ministry of Commerce must prove that China is subsidizing companies that export electric vehicles to the EU and that this is harming the EU. European car industry.

One trade lawyer said it would not be easy to find enough evidence to sue, adding that the EC often took a "political approach" to such investigations. "They can turn the tables, so we can expect to see some very big lobbying," the lawyer said.

Simone Tagliapietra, an expert at the consulting organization Bruegel, said that launching an investigation is the beginning of a long journey, and noted that it will take time to impose import taxes. "Ultimately, it can proceed, but it must go hand in hand with an active industrial policy that ensures the EU auto industry rapidly develops its competitiveness," he said.