In a move that could ignite a tense trade war, the European Union is reportedly set to reveal new tariff rates on China-made electric vehicles (EVs) imported into European markets. The United States under the Joe Biden administration had previously hiked duty that the country imposes on Chinese EVs to nearly 100 per cent.

At the heart of the matter is the allegation against Chinese EVs that such vehicles enjoy subsidies provided by the Chinese government, making them ‘affordable’ even when brought into foreign markets. Local players are often unable to compete - in terms of pricing - with such products in their own markets. Several European automotive manufacturers have previously voiced their concerns although a handful have also confessed the onus is on them to work on newer and cost-effective offerings while still remaining profitable.

The looming tariff hike from EU could lead to a sharp reaction from China, both in terms of words as well as action. But the tariff hike is almost certain. The European Commission has been probing the role of subsidies from Chinese government benefiting Chinese EVs being exported. European Commission President Ursula von der Leyen has time and again underlined the need to act to prevent China from flooding Europe with its EVs.

Inviting the wrath of the dragon?

Many experts have warned against EU hiking taxes that could provoke China. Europe still depends on China for imports of various commodities while European carmakers also compete in China, the world's largest vehicle and EV market.

A speculated counterattack from China could come in the form of imposing higher tax on automobiles from European brands in the country. This could potentially have a major impact on global faring for such companies. For instance, Porsche sold close to 80,000 cars in China in 2023. China accounted for a third of all Mercedes cars sold last year.

How has China reacted to US hiking duty?

The US last month hiked duty on imported Chinese EVs from 25 per cent to 100 per cent. Other items like non-lithium-ion battery parts and medical supplies have also seen duty rate increased. It has been reported that the tariff rise will impact around $18 billion worth of imports from China.

But China has not taken too kindly to this. The country's Ministry of Commerce issued a statement in which it outlined that the move will impact bilateral cooperation. The country's political establishment also termed the move as ‘wrongful acts’ and has said it is ‘firmly against’ it. On ground though, no tit-for-tat measure has been carried out yet.

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