Trade war a double-edged sword for China and Europe
Lianhe Zaobao correspondent Yu Zeyuan sees a potential China-EU trade war looming, fuelled by Europe’s policies, Chinese tariffs, and political complexities.
After the European Commission announced on 12 June that it would be imposing countervailing duties on imports of electric vehicles (EVs) from China, the Chinese Ministry of Commerce announced on 13 June that it would be launching an “anti-subsidy” investigation into European Union (EU) dairy products and an anti-dumping investigation into imports of relevant pork and pig by-products originating from the EU. A trade war between China and Europe is looming on the horizon.
In its statement, the European Commission alleged that the EV value chain in China “benefits from unfair subsidisation”, and that the influx of subsidised Chinese imports at “artificially low prices” presents a threat of “clearly foreseeable and imminent injury” to the EU industry.
Hence, it decided to impose provisional countervailing duties on China-imported EVs from 4 July. Should China and the EU not reach a resolution, the EU will decide whether to upgrade these provisional duties to permanent measures within four months of their imposition.
The EU already has a 10% levy on Chinese cars. The additional duties on BYD will be 17.4%, Geely 20% and SAIC 38.1%. Also, Chinese EV brands which cooperated in the investigation but have not been sampled would be subject to a weighted average duty of 21%.
Action and reaction
Since launching a trade war against China back in 2018, the US has more recently imposed a tariff of 100% on Chinese EVs, effectively blocking them from entering the US market. Although the EU’s tariffs on Chinese EVs are far lower than those imposed by the US, they still pose substantial obstacles to China-Europe trade. Naturally, China must respond to this unfavourable situation.
EU exporters of dairy and pork products to China are mainly France, Spain, Portugal and Italy, the key supporters of the EU’s tariff hikes on Chinese EVs.
Prior to this, China announced that it would impose additional tariffs on imported cars with engines larger than 2.5 litres. Although the Chinese side did not explicitly target the EU, imported cars with displacement engines larger than 2.5 litres are mainly luxury models, which China mainly imports from Germany and other EU countries.
The day after the EU announced additional tariffs on Chinese EVs, China’s commerce ministry said that it would be launching an anti-subsidy investigation into EU dairy products and an anti-dumping investigation into EU pork products. This is China’s first round of counterattacks against the EU’s tariff hike, indicating that China has made corresponding plans for this situation.
EU exporters of dairy and pork products to China are mainly France, Spain, Portugal and Italy, the key supporters of the EU’s tariff hikes on Chinese EVs. Clearly, China chose dairy and pork products as the target of its initial round of counterattacks, aiming for “precision strikes” against EU countries.
France taking the lead
France is seen as the main driver of the EU’s tariff hike. Analysts claim that this is because French cars are not very competitive in the Chinese market and the country is therefore not as worried as Germany about China’s countermeasures against European cars.
At the same time, by doing so, France is also forcing Chinese auto manufacturers to set up their European headquarters in France, and asserting influence over issues such as Chinese investment in Europe and supply chains.
Chinese auto manufacturers currently have their production centres in Hungary because of its China-friendly government.
However, Chinese auto manufacturers are reluctant to establish their European headquarters in France due to high construction costs, an underdeveloped EV supply chain, and France’s reluctance to offer additional subsidies to Chinese companies.
Hungary a friendlier option
Chinese auto manufacturers currently have their production centres in Hungary because of its China-friendly government. Hungary’s advantage lies in its relatively lower costs and stable relationship with China. In 2022, CATL built a battery plant in Hungary worth billions of euros, attracting suppliers to the country. BYD also plans to build a factory in Hungary.
However, Hungary has limited influence in the EU, unlike Germany and France, which are the “engines” of the EU, or Spain, which is also quite influential. It is difficult for Chinese auto manufacturers to enter Germany, the leading automotive manufacturer; while France is also not the main option for Chinese auto manufacturers due to its overly demanding conditions.
Spain is the second-largest automaker in Europe, with many auto manufacturers using it as a springboard to enter the European market. In April, Chinese automobile manufacturer Chery announced plans to develop new EVs via a joint venture in the Spanish city of Barcelona. This shows that Chinese auto manufacturers have begun to establish a presence in Spain to gain a foothold in Europe.
Now that China’s homegrown C919 airliner has basically matured, once countermeasures are taken against Airbus, France’s and the EU’s aerospace industry will be dealt a heavy blow.
China’s countermeasures
Before the EU announced additional tariffs on Chinese EVs, China had already announced an anti-dumping probe into imports of brandy from France, clearly targeting the country. If China and the EU are unable to find a solution by 4 July and the EU imposes additional tariffs on Chinese EVs, China may also take countermeasures against France and other EU countries that support the tax hike.
Among them, one of China’s strongest countermeasures could be targeted at European aerospace enterprise Airbus. France is an important production base of the company while China is one of the main markets of the enterprise. Now that China’s homegrown C919 airliner has basically matured, once countermeasures are taken against Airbus, France’s and the EU’s aerospace industry will be dealt a heavy blow.
Of course, if China takes action against Airbus, it would significantly escalate the China-Europe trade war, resulting in huge losses for both sides. The trade war is a double-edged sword for China and Europe — once it begins and escalates, both sides stand to lose. Besides, China-Europe relations are likely to further deteriorate, and China’s efforts to keep Europe from fully aligning with the US through economic and trade relations may be futile.
The China-Europe trade war is actually a spillover and extension of the broader rivalry between China and the US. After the US initiated the trade war against China in 2018, Europe, in its own interests, chose not to follow the US in imposing trade restrictions on China.
But after the US’s Joe Biden administration was installed, it actively engaged Europe to counter China. In particular, after the outbreak of the Russia-Ukraine war in 2022, significant strides were made in US efforts to woo Europe to contain China.
Thus, while China is capable of countering the EU’s tariff hike on Chinese EVs, knowing how to strike a balance while imposing countermeasures; preventing overall China-EU relations from spiralling out of control; and keeping important European countries from becoming China’s new rivals are also challenges that Chinese decision-makers must handle cautiously.
This article was first published in Lianhe Zaobao as “中欧贸易战箭在弦上”.
