What to Know About Europe’s Extra Tariffs on Chinese Electric Cars

The European Union said on Wednesday that it would impose additional tariffs of up to 38 percent on electric cars built in China, a move it said would help level the playing field for automakers in Europe.

The tariffs, which have been expected for months, come on top of existing 10 percent duties, but the level of their impact has been disputed. Some European automakers argue they will set off a trade war, but other experts have said they will not stop China’s dominance in the industry.

Instead, they argue that incentives to make low-emission cars more attractive to drivers are needed instead, if the European Union hopes to meet its goal to ban the sale of new internal combustion engine vehicles in 2035.

What does this mean for consumers?

Industry experts predict that the increased duties on electric vehicles from China will hurt consumers more than they do Chinese automakers, by increasing the price of the most affordable electric cars on the market.

But according to an investigation by the European Union, the entire supply chain of Chinese electric cars enjoy government subsidies that allow automakers there to drastically reduce their production costs. This gives Chinese producers an unfair competitive edge over their European rivals, the European investigation found.

BYD’s Dolphin model, for example, sells in Europe for about 32,400 euros, or about $34,900, compared with nearly €40,000 for a Tesla Model Y and €37,000 for a Volkswagen ID.4.

Clamping down on E.V. exports to E.U. nations could drive more automakers in China to shift assembly to European countries like Hungary or Spain, where costs for labor and parts are higher, resulting in higher costs for consumers.

How will this affect European automakers?

Many European car manufacturers are heavily dependent on China, the world’s largest market for automobiles, for both exports and production in the domestic market.

“This decision for additional import duties is the wrong way to go,” Oliver Zipse, chief executive of BMW, said on Wednesday. “The E.U. Commission is thus harming European companies and European interests.”

German manufacturers, BMW, as well as Mercedes and Volkswagen, not only sell to the Chinese, but also have large production and research and development operations in China. They fear that any retribution from Beijing could harm their business.

Others remain interested in collaborations with the Chinese. Last month, Stellantis said that it would start selling two models in Europe from its joint venture with the Chinese automaker Leapmotor as part of efforts to circumvent the tariffs.

Was the E.U. just following the United States?

The Biden administration announced last month that it would impose new tariffs of 100 percent on Chinese electric vehicles. That measure quadrupled the tariffs that the United States previously charged for foreign cars, in an effort to shield the American auto industry from Chinese competition.

Some analysts had worried that tariffs set at a lower level might not be enough to stop Chinese-made electric vehicles from coming into the United States, given the big price differential between Chinese- and American-made cars.

But Wendy Cutler, the vice president of the Asia Society Policy Institute and a former U.S. trade official, said the 100 percent level would be high enough to block that trade. “That’s what we call a prohibitive tariff. It really cuts trade off,” she added.

The European Union began an investigation into Chinese E.V. subsidies in October, citing what leaders said was unfair competition, especially from China’s three leading makers of electric cars, BYD, Geely and SAIC.

Is it a setback for climate policy?

Tariffs like these have set off a debate among some economists and climate activists about whether they’re an obstacle in the fight against global warming. Gasoline-powered vehicles are a major producer of the greenhouse gas emissions that are warming the planet.

The argument against tariffs is that they make electric vehicles more expensive, slowing the transition away from fossil fuels. The Chinese government and several German automakers took up a similar line of argument, as did experts who pointed out that Western countries should be interested in cheaper electric vehicles if they want to meet their goals to combat climate change.

”Protectionist measures can only lead to higher car prices for the consumer and, in this case, also kick the can of achieving announced emission goals further into the long grass,” said ManMohan Sodhi, a professor of supply chain management at Bayes Business School in London.

How did the E.U. get here?

The European Union is eager to avoid falling into a similar situation as it did in the late 2000s, when Beijing pumped large sums of money into solar energy technology, enabling domestic manufacturers to make multibillion-dollar investments in new factories and gain market share globally.

China’s boom in production caused the price of panels to plummet, forcing dozens of companies in Europe and the United States out of business. That led the European Commission to open an anti-dumping investigation that resulted in punitive tariffs on the Chinese panels.

But China retaliated, announcing its own investigation into exports of European wine and solar panel components, a move that divided the bloc. That allowed China to pit them against one another, ultimately leading the Europeans to back down.

More than a decade on, Germany’s solar industry is still struggling, and cheap solar panels from China dominate the market.

What happens next?

Even before the announcement on tariffs from Brussels, demand for Chinese E.V.s in Europe had begun slowing down, as Germany and France cut back on subsidies for electric cars.

Last month, Great Wall Motors said that it was closing its headquarters in Munich, citing “the increasingly challenging European electric vehicle market, coupled with numerous uncertainties in the future.”

But BYD, China’s leading manufacturer of electric cars and a sponsor of the 2024 European soccer championship that begins in Germany on Friday, remains focused on Europe. The company is already building a factory in Hungary and is considering a second one.

Ana Swanson contributed from Washington.