What will be the impact of Western Tariffs on Chinese Electric Vehicles?
#80: Jacob Gunter, Alicia García-Herrero and Tobias Gehrke
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Multiple Western countries recently decided to introduce or increase their tariffs on Chinese electric vehicles. Proponents of the tariffs cite varying reasons, including the need to respond to respond to China’s unfair industrial policies. But what will be the impact of these measures?
China’s EV makers face a fierce price war and incomplete and delayed market consolidation back home, making export markets key for profitability that funds their innovation and expansion. Profits and market access are now at risk. China’s EV makers will struggle with the growing barriers to exports. The US, Canada, and Mexico have especially high tariffs making any EV export unprofitable; the EU has tailored rates based on subsidies investigations which are more manageable but hurt weaker EV brands and cut into margins for good ones; but also emerging growth markets like India and Brazil have their own new barriers.
The tariffs imposed by the US and Canada, and the EU’s recent countervailing duties, are a belated response to China’s massive industrial policy to move up the ladder in key technologies, including green tech. These tariffs are coming too late to be effective for multiple reasons. Firstly, China has managed to have the necessary intellectual property transferred from Western companies leading such technologies in exchange for market access. Secondly, China has invested massively in research and development improving on the technology transferred from the West. Thirdly, China can count on economies of scale for manufacturing that no other country has.
EU duties on Chinese EVs could encourage Chinese companies to build factories in Europe, unlike in the US where Chinese investments face wider hurdles. Such greenfield investments could create local jobs and offer more choices to consumers, but also raise risks. Chinese factories might not use local suppliers. They might limit tech sharing and, given EVs’ data-heavy nature, pose cybersecurity threats. Tariffs are thus only the opening act in a long play. In the main act, EU leaders, along with Western allies, will need to tighten investment and cybersecurity rules in a coordinated effort. There is more drama to come.
Further reading:
Not All Tariffs Are the Same: The Core Differences between U.S. and EU Tariffs against Chinese EVs, Center for Strategic and International Studies, Francesca Ghiretti
Fortune favours the bold: Upgrading the EU’s geoeconomic strategy, European Council on Foreign Relations, Tobias Gehrke and Filip Medunic
European Union duties on electric vehicles point to new era of EU-China relations, Bruegel, Alicia García-Herrero
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