The European Commission is set to impose countervailing duties (CVDs) of up to 35.3% on electric vehicles (EVs) from China, additional to the European Union’s 10% tariff on imported cars, after EU countries did not oppose the move in a 4 October qualified majority vote. Even though Germany and four other members voted against the duties, and twelve other members abstained, the Commission can now proceed with the CVDs before a 30 October deadline. Negotiations with the Chinese may continue even after that.
The duties are a mistake. They will harm EU citizens more than help them, and they will eventually backfire on the European automotive industry.
According to industry sources, Chinese-made EVs, many in joint ventures with EU and US carmakers, now match world quality standards and are much lower priced – indeed, this is the fear that triggered the policy debate on duties. Moreover, it is understood in the automotive industry that subsidies in China and elsewhere now play a minor role in market outcomes. The price/quality advantage of Chinese EVs appears to reflect China’s vast economies of scale (it produces 60% of all EVs), low labour costs, a technology and materials edge in batteries, intense competition among over one hundred China-based producers and their early-mover advantages.
In an animated debate over the CVDs, their biggest cost is the least discussed: persistently high EV prices hurt all consumers and especially those with low incomes. For many less well-off EU citizens, especially in rural areas, a car is the only viable transportation option. Yet, with CVDs, many EU citizens potentially willing to green their vehicles will be unable to do so. Their peers in Japan, Norway and the UK, which have eschewed CVDs so far, will be better placed, as will the middle classes in poorer nations such as China, Mexico or Thailand.
The CVDs will also have three negative longer-term repercussions.