FROM OUR CORRESPONDENT IN BEIJING
Beijing’s first response to the announcement of European tariffs on electric cars made in China is verbal, low intensity. Accusations of “protectionism that stifles competition”, warning to “correct the wrong direction”, promise to react “with all necessary measures”. Expected and inevitable words, given that the barrier raised by the European Commission to curb the next invasion of Chinese vehicles was even higher than expected: up to 38% addition to current 10%.
It means that some Mandarin car manufacturers who have received heavy state subsidies will be punished with duties of up to 48% upon landing in Europe (this is the case of SAIC). But the bulk of Chinese producers will get by with much less: the giant Byd will be burdened with an additional 17%, Geely with a 20%.
Compared to the Biden Administration, which last month quadrupled tariffs on Chinese cars exported to the United States, bringing them to 100%, Europe was moderate.
And the Chinese reaction is also moderate: the Ministry of Commerce “reserves the right” to appeal to the World Trade Organization and plans other “measures necessary to resolutely defend the rights and interests of Chinese industries”, without specifying. This doesn’t sound like an announcement of an impending trade war on a large scale.
The European duties are technically “provisional”, they will come into force on July 4th and must be confirmed by November: Beijing thinks there is time and room to negotiate. The Xinhua agency calls for “dialogue and collaboration”.
Already when the United States fired its 100% cannon in May, China’s reaction was pragmatic: they did the math, they observed that the damage is not as serious as it would seem, because their electric cars represent only 2% of the American market and they have limited themselves to punishing the Western export of a type of plastic used by the Chinese automotive industry.
Some Beijing political scientists have pointed out Xi Jinping’s decision to “maintain moral superiority over the Americans” avoiding indiscriminate retaliation. The concept of Chinese moral superiority has become one of Xi’s strong points. The Chinese president claims that Westerners, instead of hiding behind protectionism, they should thank the Chinese industry that innovated and developed high-tech, low-priced products that “help you pursue your green goals and do good for consumers by lowering inflation.”
Good lesson from Xi. Which however glosses over the reason for the European action: state subsidies that allowed the Chinese automotive industry to run: between 2009 and 2021 the electric vehicle sector in China received aid for at least 125 billion dollars, according to research by the Center for Strategic and International Studies in Washington. Competition «with Chinese characteristics».
However, Xi is still using the tactic of political persuasion, he is trying not to lose his relationship with Europe, he wants to avoid his alignment with America. It counts a lot on the weight in EU decisions of Germany, whose automotive industry has an indispensable market in China and therefore does not want to enter into a spiral of tariffs; then there is the Sweden, whose historic Volvo brand has thrived under Chinese ownership for years; Hungary has received billions in investments for the installation of large Chinese factories for electric vehicles and batteries on its territory.
China’s relative calm is explained by the Beijing Automobile Manufacturers Association: «The duties, on average around 20%, were expected and we don’t think they will have too much of an impact on most of our producers,” said Secretary-General Cui Dongshu. According to the manager, companies such as BYD and Geely maintain great development potential on the European market.
From Shanghai Bill Russo, former head of Chrysler China who has become guru of the Chinese automotive market, explains that tariffs will not stop the rush of Chinese cars towards Europe: «BYD electric cars will have lower costs than any vehicle that European manufacturers are currently able to offer».
Industry analysts estimate that BYD will be able to deliver a profit margin of around 8% on cars sold to Europeans, even after discounting duties.
On the stock market, nerves are more than steady in Hong Kong and Shanghai: BYD shares gained 5.8% as investors feared heavier duties. Geely closed at +1.7%; Leap Motor +2.7%. Only the shares of SAIC, which will have to pay 48% tariffs, lost 1.6%. Ultimately, the tariffs will at least partially weigh on European buyers.
What will happen in the next few weeks? It is expected that the “necessary measures” to react to the tariffs on cars affect agricultural products, the aeronautical industry and super luxury cars. It starts in slow motion: the Chinese Ministry of Commerce today said that Chinese companies that work with pork and dairy products could request to open an investigation for “dumping” (unfair price competition) on “certain products” arriving from the European Union. Measures could follow on large-engined European cars, on aeronautical supplies and on luxury goods. «It’s like watching a car accident in slow motion, hoping to find a way out»says Jens Eskelund, president of the European Chamber of Commerce in China.
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