A trade war is an economic conflict where nations try to kill each other’s trade. European Commission President Ursula von der Leyen risked walking a tightrope when she launched an anti-subsidy investigation against Chinese electric cars. “Global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies,” von der Leyen said in her annual State of the Union address. “This is distorting our market.”
The probe seeks to gather evidence to determine whether China has breached the bloc’s anti-subsidies rules by supporting Chinese battery-powered EVs. But pundits said the move risks snowballing into a China-EU trade war.
From Bloomberg: “If a surge in government support for strategic industries risks fueling a global subsidy war, then the European Union may have just sparked one of its biggest battles. With European officials fearing millions of auto jobs are at risk from China’s surging electric vehicle exports, the bloc’s executive arm on September 13 launched an investigation into Beijing’s financial support for the EV industry. The probe, which could take up to nine months, will probably lead to new EU tariffs on Chinese EV imports and embroil major non-European automakers like Tesla Inc., which produce cars in China for export to the bloc.”
China said the EU’s investigation into EV subsidies is excessive and will harm relations. “The EU’s proposed measures to protect its own industry in the name of ‘fair competition’ are protectionism,” China’s Ministry of Commerce said in a statement on Thursday. “China’s EV sector has grown rapidly in recent years and its competitiveness keeps improving, which is the result of persistent efforts of tech innovation. It is a competitive advantage won through hard work and its own strength.”
The China Chamber of Commerce to the EU said Chinese manufacturers “deliver high-end and cost-effective EVs that cater to diverse consumer preferences, receiving acclaim worldwide, including in Europe. It’s crucial to emphasize that this advantage isn’t a product of what the European Commission called ‘huge state subsidies,’” the organization said on its website.
Global Times, the Chinese Communist Party’s newspaper, said the EU’s protectionist move will become a poison for the European economy. “European policymakers should not forget that China is an important automotive market,” the newspaper said, threatening “countermeasures” to protect Chinese EV companies.
The EU’s battle over Chinese EVs also spotlights the lack of effective global rules governing the use of subsidies. In a report last week, the Council on Foreign Relations called on the US to lead a rethink at the World Trade Organization of how to regulate government support and cap subsidies to stave off deeper global economic conflict.
If the EU investigation results in new tariffs on Chinese EVs, it would have a bigger impact than any of the bloc’s previous anti-subsidy actions on Chinese imports. Slapping high tariffs on $7.2 billion worth of Chinese electric cars would definitely lead into a trade war with China.
French Finance Minister Bruno Le Maire defended the probe as he rejected accusations of protectionism. “We don’t have to fear any country. We are the EU…We are one of the most powerful economic continents,” he told Bloomberg TV on Friday. “We are not here to trigger any kind of trade war, we are just here to ensure that fair rules are being implemented by all partners. It has nothing to do with protectionism.”
“There is some history that makes Europeans extra nervous,” said Deborah Elms, executive director at the Asian Trade Center in Singapore. “They watched as China built up a dominance in steel, solar, and so forth and then, with more supply than China’s domestic market could absorb, start exporting at very low prices and in huge quantities.”
China holds a dominant position in the global EV supply chain, with over three-quarters of the world’s battery production capacity. It could have swallowed America’s EV market if the Trump administration did not put a high tariff wall of 27.5 percent, which was continued by the Biden administration. The EU is about to follow suit to protect 14 million jobs. Von der Leyen is willing to go to war to protect these workers. She knows that state-supported Chinese EV manufacturers can kill the competitiveness of their European counterparts. This will subsequently clear the way for Chinese EV companies to dictate prices and standards in Europe.
