EU To Investigate “Flood” Of Cheap Chinese EVs, May Impose Tariffs
The president of the European Commission says China is dumping Chinese EVs on the Continent and she intends to do something about it. In her annual State Of The EU address on September 13, 2023, European Commission President Ursula von der Leyen suggested that Chinese manufacturers are dumping boatloads of Chinese EVs on EU customers that are priced below what domestic manufacturers charge.
She suggested that the root cause of the problem is the heavy subsidies provided to Chinese automakers by the central government — subsidies that allow them to sell Chinese EVs at artificially low prices to the detriment of domestic companies. If so, she warned the EU would need to consider imposing new tariffs on Chinese cars to level the playing field.
Not being a student of international trade policy, I turned to Investopedia to learn more about dumping. Here’s what it has to say:
Dumping is a term used in the context of international trade. It’s when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter’s domestic market. Because dumping typically involves substantial export volumes of a product, it often endangers the financial viability of the product’s manufacturer or producer in the importing nation. The biggest advantage of dumping is the ability to flood a market with products at prices that are often considered unfair.
While the World Trade Organization (WTO) reserves judgment on whether dumping is an unfair competitive practice, most nations are not in favor of dumping. Dumping is legal under WTO rules unless the foreign country can reliably show the negative effects the exporting firm has caused its domestic producers. To counter dumping and protect their domestic industries from predatory pricing, most nations use tariffs and quotas. Dumping is also prohibited when it causes “material retardation” in the establishment of an industry in the domestic market.
According to the New York Times, von der Leyen told her audience, “Europe is open for competition, not for a race to the bottom. We must defend ourselves against unfair practices.” She went on to say the EU sees the electric vehicle sector as “a crucial industry for the clean economy, with huge potential for Europe, but global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies.”
Is It True?
Mark Twain once said, “What you don’t know won’t hurt you near as much as what you do know that t’ain’t true.” Is Ursula von der Leyen correct when she says Europe is being flooded with cheap Chinese electric cars? Bloomberg (paywall) examined that question and found the truth may be somewhat different. Here are some prices of Chinese EVs in Europe and in China:
- BYD Dolphin — In France: €28,990, In China: 116,800 yuan (€15,200)
- MG ZS — In Germany: €31,310, In China: 119,800 yuan (€15,600)
- Zeekr X — In Germany: €44,990, In China: 189,800 yuan (€24,700)
- Polestar 2 — In Germany: €48,990, In China: 299,800 yuan (€38,900)
- BMW iX3 — In Germany: €67,300, In China: 405,000 yuan (€51,800)
- Nio ET7 — In Germany: €69,900 without battery, €81,900 with battery, In China: 428,000 yuan (€55,600)
The only Chinese electric car sold in Europe that is super cheap is the Dacia Spring, imported by Renault. It sells in France for €20,800 ($22,300) or €15,800 after a French subsidy is applied. So it seems that von der Leyen is engaging in some scare tactics that may or may not be helpful.
Why Are Chinese EVs Cheaper?
It is perfectly obvious that the Chinese Communist Party has chosen to give a huge leg up to domestic manufacturing. It’s part of an overall strategy to lift many of its citizens out of the poverty created by the rule of Mao Zedong.
In many ways, it is a stark reminder of the heady days when Japan was the world’s leading manufacturer of automobiles and electronics and the world’s automakers were worried about being crushed by a flood of cheap Toyotas and Hondas.
Trade policies wax and wane over time. Largely because of US tariffs, the Japanese companies all transitioned to US assembly plants. Perhaps the same could play out in Europe as its leaders try to figure out what to do about a growing flow of electric cars from China.
Forvia, formed by a merger between French car supplier Faurecia and German supplier Hella, is the seventh largest parts supplier to the automotive industry in the world. At the CES show in Las Vegas last January, Forvia CEO Patrick Koller told the press that it costs €10,000 ($10,618) less to manufacture a car in China than it does in Europe.
He added that China was producing “good vehicles” and Europe would not be able to stop imports. The issue is “more dangerous” for Europe than the US, he said, as high duties have limited China’s US market share. Chinese EV makers can produce vehicles for less because they have lower research and development costs, lower levels of capital spending, and lower labor costs than rivals in Europe, Koller said.
Trade Is A Two-Way Street
Bear in mind that Tesla and Volvo both import Chinese-made cars to Europe. Tesla is even sending cars made in Shanghai to Canada, which does not have tariffs on imported cars similar to those imposed by the United States. Also bear in mind that many German manufacturers have huge investments in manufacturing cars in China. It is unlikely that Mercedes, Volkswagen, and BMW want to see China punished if it will lead to higher costs for their own products manufactured in China.
What we are witnessing is a giant tussle between nations as the prior era of globalization unravels. For decades, American and European corporations saw China as an an inexhaustible new market for their products, whether Coca Cola or cars. Now the tables have turned. China is experiencing a contraction in its economy and looking to foreign markets to take up the slack in its manufacturing sector.
The western world taught China how to manufacture stuff, and boy howdy, did they ever take those lessons to heart! Now it is like end of Goethe’s The Sorcerer’s Apprentice where the flood of goods is threatening to get completely out of control.
Unforced Errors
After the von der Leyen speech, Roberto Vavassori, the head of the Italian trade association Anfia and executive director of Brembo, told Bloomberg News that the European car sector is in trouble partly because the European Union is trying to regulate its way to an all electric future without appreciating the implications for industry.
“The probe is certainly welcome, but it also certainly comes at least a year and a half too late,” Vavassori said.
“A serious and efficient probe should have taken place quietly. Now that ships full of Chinese EVs have left their shores and are heading toward Hamburg and other European ports, it’s a bit late to flag that we’re starting a probe, especially at a time of very delicate political and trade relations between Europe and China.
“There are things we should have done years ago, first of all putting in place equal tariffs for European cars going to China and Chinese cars coming to Europe. This is about Europe and the fact that we have a massive competitiveness problem. We approved EV regulation for ideological reasons without having a clear industrial background on what the competitive consequences would be for our economies. Now we have to pick up the pieces.
“As many CEOs of car manufacturers have already pointed out, there currently is an intolerable and frankly incomprehensible disparity between tariff treatments for cars entering different countries. This is something that should have been dealt with immediately. A Chinese EV entering Europe pays a 10% tariff while a European one entering China pays, depending on its characteristics, between 15% and 25%. This is incomprehensible.”
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The Takeaway
We here at CleanTechnica are not policy wonks nor are we trained at the world’s finest business schools. But it seems obvious the speech Ursula von der Leyen gave this week was ill-timed and ill-considered. The world is in upheaval after the Covid pandemic and because of the criminal war on Ukraine. China, India, and Russia are flirting with their own New World Order, much to the chagrin of America and the rest of western world.
There’s much more going on here than European tariffs on Chinese-made electric cars. How the EU handles this will have an enormous impact on the EV revolution going forward. It would be a shame if something as vital as transitioning to electric transportation should be sidetracked by internecine squabbles.
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