Import Duties on Electric Vehicles from China Faring Well, Yet Positive Outcome Not Entirely Desirable

The EU is grappling with a delicate balancing act as it imposes tariffs on Chinese electric vehicles (EVs), a move aimed at de-risking from China, preserving its manufacturing base, and accelerating decarbonization. However, as Chatham House warns, this decision may come at a cost: hurting the EU's own climate targets.

The negative impacts of these tariffs need to be recognized and addressed. Penalizing cheaper Chinese clean tech imports and prioritizing more expensive EU-made alternatives will lead to higher prices and a slower energy transition in the EU. To meet the EU's 2030 climate targets, the EU will have to double its climate financing, according to Chatham House.

The EU's ambition to protect its clean tech manufacturing base is understandable, given the impact of cheap Chinese solar panels on the European solar industry in the early 2010s. However, the imposition of tariffs on Chinese EVs both de-risks the EU from China and helps to maintain European manufacturing, but it will slow down the EU's energy transition and drive up the cost of that transition, including the cost of EVs.

This increase in prices may risk the EU missing its emissions reduction targets and entrenching the perception that EVs and other clean tech solutions are expensive and out of reach for consumers with smaller budgets. Current commitments fall short of the required investment, with an annual climate investment deficit estimated at €406 billion in the EU.

The tariffs affect not only Chinese Original Equipment Manufacturers (OEMs) like BYD, Xpeng, Polestar, and MG, but also western manufacturers like Stellantis, Tesla, and BMW, who import some of their EVs from their factories in China. The total figure for EV registrations across the 16 European countries monitored by Dataforce declined by 36% from June to July, reflecting an overall slump in EV sales.

The tariffs on Chinese EVs, imposed in early July, led to a 45% decline in their registrations in the EU compared to June, according to Dataforce. This decline may exaggerate the impact of the tariffs due to dealers stocking up and selling a higher volume of products before the tariffs were announced.

The EU aims to produce at least 40% of strategic net-zero tech, including EV batteries and EVs, domestically by 2030. However, hitting the manufacturing targets for solar panels and EV batteries alone would require an investment of around €65 billion in the EU.

The U.S. has chosen a solution more drastic than the EU: it announced that its own tariffs on Chinese EVs will rise to an unprecedented 102.5%. This high tariff rate does little to accelerate the availability of low-cost EVs to the market and risks delaying America's own emission reduction targets.

The EU faces a classic trilemma in which it must make choices to achieve all three of its goals simultaneously. The tariffs on Chinese EVs will become permanent in November unless the EU and China reach an agreement. It is crucial that both sides find a solution that addresses their concerns while minimizing the negative impacts on the energy transition and the global fight against climate change.

Import Duties on Electric Vehicles from China Faring Well, Yet Positive Outcome Not Entirely Desirable