The EU has just put its car industry on the road to destruction
European carmakers will only grow flabby and uncompetitive behind tariff walls
The EU has just put its car industry on the road to destruction. European carmakers will only grow flabby and uncompetitive behind tariff walls.
Tariffs on Chinese EVs
The timing, to put it mildly, is slightly odd. As Euro 2024 football tournament kicks off, viewers might notice the logo of Chinese electric vehicle manufacturer BYD prominently displayed. BYD is both a major sponsor and the “mobility partner” for matches across German cities.
In the same week, the EU slapped punitive tariffs on imports of Chinese EVs. Europe is welcoming Chinese brands while also telling them to get lost. This mixed messaging reflects the EU’s mismanaged response to electric vehicles. Its war on cheap Chinese imports will misfire, ultimately destroying its auto industry.
Economic Fallout
The decision to impose extra tariffs up to 38%, on top of the existing 10% levies, means almost 50% in taxes on Chinese cars entering the bloc. This move echoes a similar decision by US President Joe Biden to impose 100% tariffs. At a stroke, the price advantage Chinese brands like BYD, Geely, and Nio relied on is wiped out. Chinese EVs will become much more expensive, and the EU will collect significant levies on each sale.
The rationale behind this decision is clear. Brussels officials fear Chinese EV manufacturers will decimate the European auto industry, which employs around 13.8 million people and generates €150bn annually in exports. Whether Chinese cars are state-subsidized or simply manufactured more efficiently, one thing is certain: the tariffs will stall their market entry.
Retaliation and Consequences
However, the policy is set to backfire on the EU and the UK if similar levies are imposed. There are three key reasons for this. First, retaliation from China is inevitable. Reports suggest China will respond with tariffs on large-engine imports from the EU, targeting high-end, luxury vehicles. Given that the EU exports €18bn of vehicles to China annually, this will hurt European manufacturers significantly.
Tariffs might also extend to other EU goods. China’s robust trade policy ensures it defends its industries swiftly. Following the EU’s announcement, €4.5bn was wiped off the value of major German auto manufacturers as investors braced for retaliation.
Stagnation Behind Tariff Walls
Second, European manufacturers will grow complacent behind tariff walls. History shows that protected industries stop competing, innovating, and instead raise prices to exploit customers. EV technology still requires advancements in driving range, battery life, vehicle weight, and price. Such improvements only come from fierce competition. Without it, European manufacturers will stagnate and become less competitive globally.
Consumer Impact
Finally, the tariffs will burden European consumers. Governments have promoted electric vehicle adoption to curb carbon emissions and achieve net-zero targets. Imposing massive levies contradicts this goal. Cars will become more expensive, draining economic spending power and taxing the transition to green energies. It is a mismanaged policy likely to cause significant damage.
A Strategic Misstep
The EU should have ensured its competitiveness in EVs before imposing quotas and targets. It needed to lead in technology and scale up production to offer low-cost cars globally. Now, tariffs cannot fix the shortcomings. Instead, they exacerbate the problem, potentially destroying a major strategic industry. The EU will only have itself to blame for the consequences.
#ElectricVehicles #TradeWar #AutoIndustry #EU #ChineseEVs