EU and China advance towards alternative solution for EV tariffs

China and the EU have been in talks, aiming to reach an alternative solution to replace the newly imposed import levies on China’s electric vehicles. However, no agreement has been reached yet, with negotiations expected to continue.

On Thursday, the spokesperson of China’s Ministry of Commerce responded to a reporter at the press conference, stating that negotiations over setting a minimum price had made some progress following concerted efforts by both parties. China expressed hope that both sides would work towards each other, adhering to the principles of being “pragmatic and balanced,” taking into account each other’s legitimate concerns, responding to stakeholders’ expectations in both China and the EU, and striving to achieve a successful outcome.

Earlier in the week, Chairman of the European Parliament’s trade committee, Bernd Lange said in an interview “We are close to an agreement: China could commit to offering e-cars in the EU at a minimum price. This would eliminate the distortion of competition through unfair subsidies, which is why the tariffs were originally introduced.”

In September, the European Commission rejected proposals by Chinese EV manufacturers to set a price floor. The Commission commented that the solution can neither “eliminate the injurious effects of subsidies” nor “be effectively monitored and enforced.”

Escalating trade tensions between the EU and China

The European Commission decided to increase tariffs on Chinese-made electric cars up to 45.3% from 30 October, after narrowly securing approval from the 27 EU member states. The decision was finalised after several series of reductions on the proposed tariffs. The levy on China-made Teslas has been reduced to 7.8% from 9%, following an earlier cut from 20.8%. The tariff on the best-selling Chinese brand, BYD, is at 17%. The tariffs on Geely have been lowered to 18.8% from 19.3%, while those on SAIC and companies that did not cooperate with the EU’s investigations have been reduced to 35.3% from 36.3%.

In retaliation, China announced that importers of EU brandy have to pay corresponding deposits of up to 39% from 11 October. The Ministry of Commerce said Beijing was also considering increasing duties on imported European gasoline cars with large engines. These announcements have pressured shares of European beverage firms and automakers. In November, Pernod Richard SA’s stocks slumped 14% and LVMH shares fell 7%. Major European car manufacturers’ shares, such as BWM, Porsche, Volkswagen, and Mercedes-Benz shares all declined between 8% and 12%. Most of these carmakers have issued profit warnings, citing sluggish demand in China and economic headwinds.

Trump’s tariff challenges

Both the EU and China are on US President-elect Donald Trump’s tariff list, which may urge both parties to continue talks to ease trade relations. Europe has been facing the challenges of China’s slowdown, domestic political turmoil, and US tariff threats. Both the euro and European stock markets are set to conclude November on a negative note. The euro depreciated against the dollar by 3% to near a two-year low. On a monthly basis, the Euro Stoxx 50 index fell 4.4%, the CAC 40 slumped 5%, and the DAX declined 1.1%. Consumer stocks, particularly those with big exposure to Chinese markets, led to broad gains.

In China, the recent economic data showed signs of modest improvement despite ongoing stimulus measures. In the third quarter, China reported GDP growth of 4.6%, down from 4.7% in the previous quarter. Trump’s victory in the US election also sent the jitters to its financial markets in November. The Chinese Yuan weakened 1.7% against the US dollar but strengthened 1% against the euro. Chinese benchmarks, the Hang Seng Index fell 5.3% and China A50 declined 1.6%.