Competitiveness will never grow in a vacuum of protectionism


Robots weld bodyshells of cars at a workshop of Chinese electric vehicle (EV) maker Li Auto Inc. in Changzhou, east China’s Jiangsu Province, Jan. 10, 2024. (Xinhua/Ji Chunpeng)

Some people may think that imposing tariffs on Chinese EVs, though unwarranted, benefits Europe’s automotive industry and economic growth. This is hardly true.

by Xin Ping

On July 4th, the EU started to impose new “anti-subsidy” tariffs on electric vehicles (EVs) from China. This is by no means a good start for China-EU trade in the second half of the year.

The reasons cited for the tariff are weak, and “unfair subsidization” is one of them. So far, the EU has not provided strong evidence that Chinese EV companies have received disproportionate subsidies from the government. In fact, to foster a new industry, it is common practice for governments to lend a helping hand in varying ways.

The EV sector is no exception. In 2022, the U.S. Inflation Reduction Act emerged as a catalyst for a global green subsidy race. Subsequently, the EU launched the Green Deal Industrial Plan, followed by subsidies for the automotive industry by Canada and the United Kingdom. In 2023, the largest economies in the world collectively initiated 220 new green product subsidy projects — triple the number in 2022. Regarding lithium batteries and solar panels, 15 G20 countries have adopted subsidies, with the United States and the EU providing more subsidies than China.

Some people may think that imposing tariffs on Chinese EVs, though unwarranted, benefits Europe’s automotive industry and economic growth. This is hardly true. The reasons are apparent.

First, the tariffs will hurt European consumers. Tariffs lead to higher prices. Purchasing EVs imported from China will cost EU consumers more. Other car manufacturers may also increase their prices to gain more profits. Tesla, for example, has already raised its prices in Europe after the EU announced its intention to raise tariffs on Chinese EVs. European consumers will pay the price for trade protectionism.

Second, the tariffs will significantly affect the European automotive industry. Though the tariffs may temporarily create a comfort zone for European automakers as they reduce market competition, healthy competition is essential for innovation and technological advancement. The cut-off of the EV industrial chain that comes with the tariffs could worsen the situation for European automakers since they benefit from cooperation in EV supply chains and joint research and development with their Chinese counterparts.

The EU should know that the real challenge for the European EV industry comes from its development within Europe instead of imports from China. From 2021 to 2023, the number of Chinese EVs exported to the EU increased by roughly 230,000. Yet during the same period, the number of EVs produced in Europe increased by 5.8 million.

Employees work at Tesla’s Shanghai Gigafactory in east China’s Shanghai, Dec. 22, 2023. (Xinhua/Fang Zhe)

In 2023, Chinese EVs accounted for less than 11 percent of the total EVs registered in the EU, despite an increase of 45.5 percent in exports to the trading bloc. Chinese EVs do not have the lion’s share in the European market. The idea of large numbers of Chinese EVs flooding European markets is only propaganda.

Chinese EVs are popular with consumers due to their exceptional design and technology, which align with consumer preferences, not because of politicians’ allegations regarding the vehicles’ low cost.

In addition to research, development, and innovation, intense competition in the domestic market has contributed significantly to the rapid growth of Chinese EV companies. These companies have faced significant challenges on their path to establishing a leading position in the technological revolution of the new energy vehicle sector. The Chinese market in which they operate is not a closed environment that protects them from competitors but rather an open field that fosters fair competition.

Many European countries and companies understand that distancing themselves from China is counterproductive to their green development goals.

German Vice Chancellor Robert Habeck warned against entering a tariff race with China; otherwise, “the baby would be thrown out with the bathwater.” Swedish Prime Minister Magdalena Andersson also pointed to tariffs as a means of protectionism.

Others who support Chinese EV makers through action include Spanish Prime Minister Pedro Sanchez, who attended the signing ceremony for Chinese EV manufacturer Geely to set up a factory in Spain, and French Finance Minister Bruno Le Maire, who stated that France would welcome BYD to establish plants in France.

Renowned European automakers like BMW, Mercedes-Benz, Renault and Stellantis have all openly opposed the EU’s anti-subsidy investigation into Chinese EVs. Volkswagen, Europe’s largest carmaker, slammed the move by pointing out that “the negative effects of this decision outweigh any benefits for the European and especially the German automotive industry.”

These are candid words, straightforward but true. The protectionist mentality reflected in the latest EU decision harms Europe the most. No towering tree has ever grown in an isolated greenhouse, and prosperity cannot be achieved behind a high wall. Will the EU, swinging rightwards after the European Parliament election, embrace a free and open economy or look inward? The question requires some serious thought.

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