New EU Tariffs on Chinese EVs Take Effect

In a move predicted to stoke tensions between the European Union (EU) and China, the EU has levied a 37.6% import tariff on electric vehicles manufactured in China. European Union leaders first announced the provisional tariffs several weeks ago as part of efforts to protect European automakers from Chinese automakers supported by billions of dollars in government subsidies.

With the U.S. market largely off limits to Chinese automakers even before the United States levied a 100% tariff on EV imports from China, Chinese carmakers turned to the EU and began exporting their affordable electric cars to Europe. EU leadership quickly noticed the influx of cheap EVs from China into the regional bloc and launched an investigation into whether the Chinese government was artificially lowering prices and undercutting western automakers by pumping billions of dollars’ worth of subsidies into China’s EV industry.

Shortly after the Biden administration passed a 100% import levy on electric cars imported from China, the EU announced that it was considering levying provisional tariffs on Chinese EV imports as well. The European Commission has now announced that the regional bloc and second-largest EV market will impose additional tariffs of up to 37.6% on electric cars imported from China despite the potential for a massive trade war between China and the European Union.

The commission noted that the tariffs were in place to counter the “unfair” subsidies Chinese automakers have received from Beijing for the last decade. The tariffs took effect on July 5, 2024, even as top European carmakers such as Volkswagen warn that such tariffs will do little to benefit the continent’s auto sector. Beijing has also warned that it will push back against such tariffs and recently initiated an anti-dumping probe into pork imports from European farmers, a move experts say was in retaliation for the EU’s impending import tariffs on Chinese EVs.

However, the tariffs will remain provisional for a four-month window as representatives from both sides continue to hold discussions on the most suitable solution. The probe into Chinese EV subsidies is still underway and will be complete in four months, after which the European Commission, the EU’s executive arm, will have the option of proposing “definite duties” that would be subject to a vote and would remain in place for half a decade.

Beijing has helped local automakers cut manufacturing costs significantly using subsidies, allowing the auto companies to sell their EVs at much lower price points compared to western carmakers. EU Commission President Ursula von der Leyen explains that the provisional duties are meant to protect the EU market from a “flood of cheap Chinese EVs” supported by state subsidies.

It remains to be seen whether these newly imposed tariffs on Chinese EVs will give western automakers such as Lucid Motors (NASDAQ: LCID) an edge on the EU market.

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