China is preparing to initiate negotiations with Europe as electric vehicle tariffs loom, Reuters reported, citing the China Chamber of Commerce.
Both sides may seek compromise to avoid trade war
According to the report, the Chinese trade group revealed that there might be an opportunity to negotiate the anticipated tariffs once the EU completes its anti-subsidy investigation into Chinese EVs in June.
“The ball may be on the European side.”
China Chamber of Commerce
Now, industry analysts expect both China and the EU to compromise to avoid further trade tension.
“I expect the Chinese side to, and we’re already seeing this, use a combination of carrots and sticks to convince some key member states to push back against the Commission.”
Noah Barkin, Rhodium Group’s Senior Adviser
Notably, China’s electric vehicle industry needs profitable exports to Europe to offset declining margins in its home turf. Meanwhile, German automakers eye the Chinese market and local partnerships to reduce EV costs.
Potential effects of EU tariffs on Chinese players
The European Union is gearing up to announce the provisional tariffs by June 5, potentially indicating billions of dollars in new costs for Chinese electric automakers.
The report estimates that every 10% increase in EU tariffs on top of the current 10% duty would cost Chinese electric automakers approximately $1 billion based on 2023 trade data. Alarmingly, that cost will further increase in 2024 as Chinese companies expand their exports to the European market.
In response, China is already hinting at the ongoing preparation of alternatives for the negotiations. The looming provisional duties could reportedly be “challenged, or even dropped if a large enough share of EU governments oppose them after four months.”
The China Chamber of Commerce also warned last week that Beijing may also hike tariffs on foreign cars with large engines to 25%, potentially affecting several German legacy brands. The Chinese government was also reportedly considering reducing tariffs on EU auto imports from 15% to 10%, according to two people who are knowledgeable about the matter.
Deal could shape future of global EV industry
The impending European decision is set to follow the quadrupling of tariffs in the US from 25% to 100% on Chinese EV imports.
A deal between Europe and China will play a significant role in shaping the future of the global electric vehicle space.
Europe is currently the most important foreign market for Chinese electric automakers. Meanwhile, European players are partnering with Chinese EV startups to accelerate their model launch and reduce overall costs.
In fact, many major Chinese companies, including BYD, Xpeng, NIO, and Chery Auto, among others, have intensified their investments in Europe. Likewise, German companies like Volkswagen and BMW are expanding their research and manufacturing in China.
All that said, it would be best for Europe and China to find a common ground and compromise to avoid further trade tension that may make a dent in the electric vehicle industry.
