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EU's countervailing duties on China's electric vehicles show how relations have changed

Publishing date
30 June 2024
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Economic relations between the European Union and China have worsened since President Xis visit to Paris in May 2024. European Commission President Ursula von der Leyen, during this meeting, expressed the EUs concerns with Chinas economic model. It seems that EU officials have shifted their focus from gaining market access for EU companies in China, after decades of unsuccessful attempts, to protecting the EU market from Chinas massive industrial policy leading to price distortions and overcapacity.

Chinese imports to the EU skyrocketed since the COVID-19 pandemic began in 2020. Those imports were largely pandemic related items such as personal protective equipment. However, more recently and clearly more structurally, the imports include green tech for the EUs green transition. Because of the EUs large bilateral trade deficit with China, due to growing imports and stagnant if not falling exports, President Xi Jinpings mantra of Chinas New Production Forces as the key engine of growth have increased the EUs concerns about levelling the playing field for European companies. Chinas economic data clearly confirms Xis aspirations. Industrial production has been growing much faster than consumption and exports have been increasing much more rapidly than in 2023, especially for green tech exports such as solar panels, electric vehicles (EVs), batteries for EVs and wind turbines which had long been dominated by European companies. 

US President Joe Biden raised additional barriers to Chinese green tech in the months following Xis visit to Europe, introducing more import tariffs beyond those included in the Inflation Reduction Act (IRA). This has further discouraged Chinese imports of green tech and/or Chinese foreign direct investment in the US. China has so far not responded to these increased tariffs.

Meanwhile, the European Commission decided on 12 June to raise countervailing duties on EVs produced in China, as part of its anti-subsidy investigation at the World Trade Organization. China has paid close attention to the EUs decision to impose duties but so far, the response has been more rhetoric than real, except for the launch of an anti-dumping probe into imported EU pork on 17 June. This is still quite limited compared to Chinas threat of import tariffs being imposed on European automobiles imported into China. China and EU have reportedly started talks on the EUs countervailing duties on EVs which are set to be applied from 4 July. However, it is unlikely that the countries will reach an agreement, or that the EU will change its mind, before the countervailing duties are imposed. 

Political pressure may come from within Europe since the reaction of EU member countries to the Commissions decision has not been as united as hoped. Germany and Sweden have expressed concerns about the measure and Chinas possible future retaliation may sway more member states in that direction. Still, the positions of EU countries on this issue might be harder to determine than one thinks. For example, Germanys Federal Minister for Economic Affairs, Robert Habeck, has offered a much harsher position on Chinas economic practices, recognising that countervailing duties of EVs are just the beginning of many other actions. The EU has been using different defensive instruments, such as anti-foreign subsidy, international procurement and other types of EU-level legislation on a rage of Chinese imports, such as solar panels, wind turbines, legacy chips and more. The case against EVs produced in China is important since there are some 15 million jobs in Europe linked to this sector, but other cases will likely come.

In conclusion, the Commission appears to have changed its stance when it comes to China: rather than na簿ve openness, it is focusing more on economic security. Multilateralism is now being tainted by geopolitics as has been the much earlier case in other parts of the world and certainly in China. Neither Chinas potential retaliation nor differences in opinion among member countries will probably be strong enough to change the direction of the Commission for two key reasons. The first is that the EUs harsher stance is still very moderate when compared to the US and other large emerging economies like India, Turkey and Brazil. The second reason is that some European governments are turning more populist with more protectionist agendas. The jury is still out as to whether any change is to be expected from China or the EU to avoid a full-fledged trade war but, as it stands, the chances are increasingly slim.

ZhngHu獺 Mundus is a newsletter by Bruegel, bringing you monthly analysis of China in the world, as seen from Europe.

ZhngHu獺 Mundus is a newsletter by Bruegel, bringing you monthly analysis of China in the world, as seen from Europe.

This is an output of China Horizons, Bruegel's contribution in the project Dealing with a resurgent China (DWARC). This project has received funding from the European Unions HORIZON Research and Innovation Actions under grant agreement No. 101061700.

EU funded project disclaimer

 

About the authors

  • Alicia Garc穩a-Herrero

    Alicia Garcia Herrero is a Senior fellow at Bruegel.

    She is the Chief Economist for Asia Pacific at French investment bank Natixis, based in Hong Kong and is an independent Board Member of AGEAS insurance group. Alicia also serves as a non-resident Senior fellow at the East Asian Institute (EAI) of the National University Singapore (NUS). Alicia is also Adjunct Professor at the Hong Kong University of Science and Technology (HKUST). Finally, Alicia is a Member of the Council of the Focused Ultrasound Foundation (FUF), a Member of the Board of the Center for Asia-Pacific Resilience and Innovation (CAPRI), a member of the Council of Advisors on Economic Affairs to the Spanish Government, a member of the Advisory Board of the Berlin-based Mercator Institute for China Studies (MERICS) and an advisor to the Hong Kong Monetary Authoritys research arm (HKIMR).

    In previous years, Alicia held the following positions: Chief Economist for Emerging Markets at Banco Bilbao Vizcaya Argentaria (BBVA), Member of the Asian Research Program at the Bank of International Settlements (BIS), Head of the International Economy Division of the Bank of Spain, Member of the Counsel to the Executive Board of the European Central Bank, Head of Emerging Economies at the Research Department at Banco Santander, and Economist at the International Monetary Fund. As regards her academic career, Alicia has served as visiting Professor at John Hopkins University (SAIS program), China Europe International Business School (CEIBS) and Carlos III University. 

    Alicia holds a PhD in Economics from George Washington University and has published extensively in refereed journals and books (see her publications in , , or ). Alicia is very active in international media (such as BBC, Bloomberg, CNBC  and CNN) as well as social media ( and ). As a recognition of her thought leadership, Alicia was included in the in 2017 and .

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