What happened?
On September 13th Ursula von der Leyen, the president of the European Commission, announced a planned anti-subsidy investigation into Chinese electric vehicle (EV) imports into the EU. The move validated our warnings that EVs would ignite global trade tensions in 2023, including in regard to European trade policy, and that China would be at the centre of this fight.
Why does it matter?
The investigation will probably lead to EU tariffs on Chinese EV imports, which could also cover non-Chinese automakers who produce in (and export from) China. This will be a lengthy process, however, and we do not expect disruption to EU‑China trade flows in the near term. Belgium, France, Germany, Spain and Slovenia already rank among the top global destinations for Chinese EV exports, exacerbating EU concerns over China’s rapidly growing share of the global EV market. We identify these anxieties as directly tied to the massive state-backed subsidies poured into China’s domestic EV sector over the last decade (which non-Chinese automakers, including European firms, have been unable to access).
We had previously flagged the likelihood that the scale of China’s industrial support would spark international concern over trade protectionism (as well as export dumping, given the current price wars in China’s automotive market). This would be despite the EU’s own subsidising of its EV and other high‑tech industries, including in the context of “de‑risking” from China. We had, however, initially flagged the US as leading this charge.
Nevertheless, any EU trade restrictions will not materialise quickly. It may take up to a year to establish and then conduct an investigation, and even longer to produce results. Securing EU wide support for severe trade restrictions may also prove difficult, given concerns regarding the impact on European consumers or Chinese retaliation against European firms. Regardless of this, we see tariffs as inevitable, given the extent of China’s subsidy support to its EV industry. It is unlikely that a qualified majority of EU member states would block this decision.
What next?
These themes will probably feature at the EU-China trade dialogue in late September, EU policy is unlikely to deviate. The earliest adoption of EU tariffs—which could rival the 27.5% level already imposed by the US on Chinese imported vehicles—may not be until mid-to-late 2024, however, given administrative timelines and resistance to trade-restrictive measures, particularly from European business groups. There is also a high likelihood that the EU announcement will embolden similar investigations in other countries exposed to competition with Chinese EV brands, including the US. Nevertheless, we expect Chinese policymakers to respond only reactively, imposing retaliatory trade measures (publicly) only after concrete EU measures materialise; consequently, this is also unlikely until 2024, at the earliest.
The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.
