By Jacob Gunter and Grzegorz Stec
The EU is currently evaluating the effectiveness of its tariffs on Chinese-made electric vehicles (EVs) since their introduction a year ago. The countervailing tariffs of 17 to 35.3 percent, which were based on investigations into several EV makers in China by the Commission, came on top of the EU’s standard ten percent car import duty. Just how the EU measures the tariffs’ effectiveness depends on their intended purpose. Were they meant only to address price distortions from subsidies or to decrease or even stop the flow of EVs from China? Or were they meant to drive Chinese automakers to invest in production sites in the EU – or a combination of all of those?
The tariffs have had mixed results
If measuring the impact on price distortions, the result is mixed but leans positive. The Commission’s investigation was exhaustive and certainly enabled it to set tariffs measured to offset the subsidies China-based EV makers have enjoyed. However, they were based on specific support measures and could not take into account the price wars driven by overcapacity which have shaped EV-makers’ strategy to accept razor thin margins – and even losses. Their willingness to accept margins in export markets that are very low but still higher than those in China has created global price distortions.
If measuring effectiveness by stemming or even stopping the flow of China-made EVs (which is not a stated goal, but which some observers use as a metric of success), the result is a profound failure. Chinese EV brands doubled their market share in the EU in the last year, in part by quadrupling exports of plug-in hybrids (PHEVs) which circumvent the tariffs. That is happening even as European car exports to China continue to decline.
If measuring effectiveness by Chinese investments in EU production sites to avoid tariffs, the situation is difficult to judge. Chinese EV makers have announced several planned investments and production lines in the EU since the tariffs: BYD is modestly expanding an electric bus plant in Hungary, XPENG is licensing production of several models in Austria, and Chery invested in a large research and development (R&D) center attached to its existing investment in Spain.
However, it is difficult to determine the weight of the tariffs on those corporate decisions. Chinese EV makers that may have been considering investments in the EU may also have been deterred by Beijing’s order in fall 2024 to pause investments in member states that supported the EV tariffs. They may have interpreted it as Beijing discouraging investments generally in Europe. Now that Beijing knows EU member states’ would like more Chinese EV investments, China may allow or even encourage its EV makers to invest in those ”friendlier” member states.
China-made EVs will continue to expand in the EU market
China is expected to significantly increase its total car production and exports in the coming years. The China Passenger Car Association (CPCA) announced in September that it expects China to export as many as 10 million cars by 2030. Not all of those will be bound for the EU, but there are hard limits as to where sufficient numbers of customers can be found, especially as a market needs enough consumers who can afford such cars in the first place.
- The US holds little hope for China’s EV makers, who correctly anticipated both former President Joe Biden’s and Donald Trump’s measures on Chinese EVs.
- Japan and South Korea lack restrictions, but their consumers overwhelmingly prefer local brands over foreign ones, Chinese or otherwise.
- Many BRICS members have raised barriers on Chinese cars, including Russia through new “recycling” fees, and India which is set to only permit imports once companies have invested enough in the market.
China’s automotive industry has seen fixed-asset investments increase by over 20 percent year on year in every month of 2025 so far, and much of that new capacity will need to be exported. Middle income and poor countries will be able to absorb a large share of China’s surging car exports, but the EU will be the preferred market. Its large middle class means a higher share of households can afford Chinese cars, and those can be sold at higher margins than elsewhere. China will fight hard to maintain access to the EU market for its cars, as losing it means losing a critical pressure valve for its overcapacity problem.
What can Europe do?
The EU has been exploring three broad avenues of how to deal with the challenge:
First is negotiating price floors, or even quotas – either EU import quotas or China’s voluntary export limits – to mitigate excessive uneven competition. The European Commission attempted a negotiated solution, but consultations with China since June 2024 have not been fruitful. Beijing wants sector-wide price floors while Brussels is arguing for a company-specific approach.
Second is using such measures as state-aid conditionality, the foreign subsidies regulation (FSR) and procurement criteria to introduce a preference for local content or joint venture and technology-transfer requirements so Chinese investments in Europe create jobs and build up the capabilities of European companies. This aligns with the broader discussion within the EU to support the development of European industries, for instance through:
- The Clean Industrial Deal State Aid Framework, which enables member states to condition access to clean tech subsidies;
- Mandatory non-price procurement criteria proposed under the Net-Zero Industry Act;
- Signals that foreign subsidies regulations could apply to investments like BYD’s in Hungary.
Third, and most politically contentious, are potential restrictions on the use of Chinese EVs – and in the future, autonomous vehicles – on security, data, and privacy grounds. This could result in outright bans or local sourcing of the risk-related hardware/software. For instance, the Automotive Industry Action Plan foresees conducting a dedicated risk assessment of connected vehicles.
The final outcome will likely be a mix of these approaches. They could be mixed with a more strategic and coordinated deployment of other trade defense instruments and de-risking tools, which Brussels seeks to achieve by currently consolidating its Economic Security Doctrine.
The EU and its member states will need to remain committed, as Beijing will respond along the way. For instance, China attempted to pressure Europe into concessions on EVs ahead of the EU-China summit by limiting access to rare-earths exports essential to multiple European sectors. This highlights the importance of access to European automotive markets for China. Beijing is also gearing up to respond to the EU’s ambitions to ensure tech transfer by imposing export licensing measures on China’s most advanced automotive technologies, like batteries and light detection and ranging (LIDAR) systems.
How Europe navigates the EV issue and whether it manages to build resilience and maintain credibility vis-à-vis Beijing will indicate how economic competition is handled in other sectors.
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