Avid followers of European trade politics might have felt a weird sense déjà vu when the EU decided to impose tariffs on Chinese electric vehicles (EVs). As if the sweeping sanctions against Russia had proven to be effective, the EU now rushes to open (or deepen) another confrontation that could jeopardize its economic growth.
The extra tariffs (up to 35.3 percent on top of the existing 10 percent duties), aimed at China’s alleged subsidies for its EV sector, were celebrated by France and Italy, but were resisted by Germany and other EU members.
While Ursula von der Leyen hailed the strong support for the step, in fact 12 members were not able to make a decision in the issue. And it was Germany’s vocal opposition that brought the issue to the forefront, revealing not the uniform voice, but the deep divisions.
German car industry is the backbone of both the country’s own economy and the EU’s overall economic health, thus Berlin has legitimate concerns. Volkswagen, BMW, and Mercedes-Benz all derive a significant portion of their global sales from China. In fact, China accounted for around one third of Volkswagen’s global sales in 2023 – and the number was significantly higher before the business environment started to change.
For such manufacturers, cutting off or restricting access to this vital market is a high-stakes gamble. The consequences could be devastating not just for Germany, but for Europe’s economy as a whole. German carmakers, which are already undergoing a major transition towards electric vehicles, rely on China not only as a market but also as a critical part of their supply chain. The potential for retaliation from Beijing against European automakers is too great for the German government to overlook.
On a side note, the automotive sector is just one example of the EU’s deep economic entanglement with China. Technology and green energy industries are equally, if not more, vulnerable to trade disruptions. Europe relies heavily on China for essential materials such as rare earth metals, which are indispensable in the production of technologies critical to Europe’s green transition. Rare earths are fundamental for everything from wind turbines and solar panels to electric vehicle batteries. Currently, China controls about 80 percent of the world’s supply of rare earth minerals, and any disruption to this supply could derail Europe’s ambitious climate goals. Would these materials become harder to source, the EU’s efforts to transition to a greener economy could be jeopardized, the more so since alternatives are limited.
And Europe’s reliance on China extends well beyond industrial sectors, the luxury goods market or the agricultural sector itself are both vulnerable to a trade war.
As a warning shot, China imposed taxes on imports of European brandy.
In its response, the European Commission said it would challenge China’s tax, deemed by Beijing to be an “anti-dumping measure”, at the World Trade Organization (WTO), calling it an “abuse” of trade defense measures.
While at first sight, it seems that the EU shot itself in the leg with copying/altering Washington’s step of raising tariffs on Chinese EVs (a step, that, on the other side of the Atlantic was more of a symbolic gesture as currently there are hardly any Chinese EVs sold in the New World), the situation is a bit more complex.
Germany’s opposition to the tariffs highlighted the internal divisions within the EU on this issue. As a key driver of Europe’s automotive industry, Germany has a vested interest in maintaining strong trade ties with China.
On the other hand, French and Italian support for the tariffs suggests a growing rift within the EU regarding as regards to the most preferred method of interacting with China, based on their unique economic interests.
France’s Stellantis, for example, has just recently slashed its operating profit margin forecast from “double-digit” expectations to a meager 5.5 percent (maybe seven percent if the stars align just rightly). The car manufacturer has struggled in North America, as well. This, on the other hand, affected the whole supply chain.
Sales of EVs accounted for 12.6 percent of car sales in the first eight months of 2024, down from 13.9 percent over the same period in 2023. Hoping that 2025 will indeed “be a great year for Europeans in the market for an electric car”, as Transport & Environment cards director Lucien Mathieu declared, French manufacturers are planning to keep a greater slice of the pie for themselves. And their greatest competitors are not German EVs, but Chinese.
In French views, “the European auto industry is in grave danger”, and they might be right when it comes to the “volume segment”, namely selling more affordable cars in larger quantities. There, the influx of cheaper Chinese EVs poses a clear risk. Not wanting to wait for the EU (or the very likely German resistance), Paris has already introduced several measures specifically targeting Chinese EVs, for example by restricting cash support for EV purchases to vehicles with the lowest carbon footprint in production, effectively excluding many Chinese-models.
Perhaps the most striking irony in this entire situation is the EU’s stance on free trade.
The European Union has long championed itself as a strong advocate for open markets, and its regulatory and trade framework is built around this principle. However, these tariffs, aimed at shielding European industries from what the EU perceives as unfair competition, are at odds with the EU’s own free-market ideals. The decision to impose protectionist measures in the form of tariffs on Chinese electric vehicles is, in many ways, a self-inflicted wound for Europe.
While these actions may temporarily safeguard certain European industries, they also risk provoking retaliatory measures that could disrupt the entire EU-China trade relationship.
Just like with the sanctions against Russia, that backfired and caused several unintended consequences from energy crisis and skyrocketing fuel prices, the tariff war against China might also end up differently than envisioned.
With the noble aim of safeguarding European consumers, Brussels might have just made EVs even more expensive and less accessible for them. A step that might slow down Green Transition itself. And if the rift widens, the EU might find it difficult to maintain its very own EV supply chain (80 percent of lithium batteries used in the EU come from China).
Critics argue that Europe is walking a fine line between protecting its own industries and destabilizing its economy by alienating a critical trading partner.
There are also broader geopolitical implications at play here. While the U.S. has been pressing for Europe to decouple from China, advocating for a harder stance on Beijing, the EU faces a more complicated reality. China is not just a major economic partner; it is a key player in the global trade system, and its role in Europe’s supply chains is undeniable. Europe’s economic relationship with China is multi-dimensional, spanning everything from industrial supply chains and technology to consumer markets and agriculture. Any significant disruption to this relationship could have severe long-term consequences.
Thus, unlike for Washington, the risk of escalating trade tensions is high, and the EU could find itself in the midst of a trade war with one of its largest trading partners. Europe’s economic reliance on China is far-reaching, and the consequences of damaging this relationship could ripple across several industries. Furthermore, the EU’s push for protectionism, under the guise of safeguarding European industries, risks undermining the very principles of free trade that have long been central to the European project.
