Chinese EV firms can absorb EU tariffs: expert

The European Union’s new tariffs imposed on Chinese electric vehicles (EVs) will not greatly impact imports from China, according to the view of a former general counsel of the Office of the United States Trade Representative (USTR).

Chinese automakers can easily absorb the EU’s lackluster tariffs and maintain profitable margins in Europe, Greta Peisch, a partner in the International Trade Practice at the American law firm Wiley, told Asia Times in an interview.

Greta Peisch, a partner at Wiley and the former general counsel for the Office of the United States Trade Representative Photo:

”Chinese companies are selling their EVs at a lower price point in China than in Europe. And when you compare the two kinds of sticker prices, it appears that there’s quite a lot of room for the Chinese companies to absorb that tariff,” she said. 

“Even if the tariff is potentially set at 38%, they will still be able to sell their EVs in Europe with the similar profit margin that they would be making in China,” she said.

She said the depression of prices for EVs in the Chinese market occurs from the buildup of a capacity that China cannot absorb anymore. She said, for example, that BYD sold an EV model in China for about US$12,000.

In April 2023, BYD priced its Seagull subcompact EV, the brand’s cheapest model, at US$11,400 in China. The model, powered by a 55 kilowatt electric motor and a 30 kilowatt per hour battery pack, can run 305-405 kilometers per charge. The battery allows the EV to charge up to 80% in 30 minutes. 

Last month, BYD offered its Seagull EV Honor Edition at US$9,700 in China. Media reports said the company planned to launch the model in Europe but would price it at about 20,000 euros (US$21,475). Similar European EV models are priced at around 25,000 to 30,000 euros. 

In fact, the EU on Wednesday only imposed a 17.4% tariff on BYD’s EVs. The Hong Kong-listed BYD shares rose 5.82% to HK$232.8 (US$29.8) on Thursday. The Hang Seng Index, the benchmark for Hong Kong stock market, only rose by 0.97% to 18,112. 

Germany’s opposition 

Last October the European Commission officially launched a 13-month investigation into whether government subsidies have helped Chinese EV makers win market share in Europe in recent years. It can impose provisional anti-subsidy duties nine months after the start of the probe. 

The EC on Wednesday announced that it has “provisionally concluded” that Chinese EV manufacturers will face tariffs from July 4 if discussions with Chinese authorities do not lead to an effective solution.

According to the EC’s decision, EV makers who cooperated with the investigation will face an average 21% duty while those who did not will face one up to 38.1%.

Specific charges will apply to BYD (17.4%), Geely (20%) and SAIC (38.1%). All these charges would come on top of the current rate of 10% tariff levied on all imported autos to the EU. It means Chinese EV makers may face a tariff up to 48.1%.

Non-Chinese car companies who produce some EVs in China will also be affected. However, Tesla may receive an “individually calculated duty rate” because of a specific request it had made.

Media reports said that Germany on Tuesday made a final effort to ask the EC to keep the EV tariffs as low as possible to avoid triggering China’s retaliation. 

After the EC’s Wednesday announcement, German Transport Minister Volker Wissing posted on X that “the EU Commission’s punitive tariffs affect German companies and their top products.” 

German companies said they are worried that the EU tariffs will have consequences for the heavily export-orientated German economy.

Peisch, whose key roles at USTR included the coordination with European partners on tariff action addressing Chinese overcapacity, said it’s a big challenge that Germany and its companies oppose the EU’s new tariffs on Chinese EVs. 

“Many German companies have made huge investments in China. And it’s understandable that they would have concerns about the EU’s tariff action and what it could mean for their markets in China,” she said. “They are kind of assuming that China is going to take retaliatory action.”

”But in my view, it’s a bit short-sighted of Germany and those companies because I think China wants to capture the market share from those European sellers in its own market and penetrate into the EU market as well,” she added. “In the short term, there is still a lot of money to be made in China by these German producers. But are they going to be welcomed there in a number of years?”

She said German companies should plan for their long term development before China starts replacing them with local players. 

European auto stocks fell on Wednesday and Thursday due to uncertainty over how China might respond to the EU’s new tariffs. 

China’s responses

On Thursday, Beijing vowed to take necessary measures after the EU decided to impose new tariffs on Chinese EVs.

“The China side will pay close attention to the follow-up progress of the European side and will resolutely take all necessary measures to resolutely defend the legitimate rights and interests of Chinese companies,” China’s Ministry of Commerce said Thursday. 

China’s foreign ministry spokesperson Lin Jian said the EU’s anti-subsidy investigation is a typical act of protectionism which ignores the facts and the World Trade Organization rules. 

“We urge the EU to heed the rational and objective views from various quarters, correct its wrong decision at once, stop turning trade into political issues, properly address economic and trade frictions through dialogue and consultation, and avoid harming the mutual trust, dialogue and cooperation between China and the EU,” Lin said.

China has abundant countermeasures against the EC’s latest move, which does not conform to WTO principles, Sun Xiaohong, secretary-general of the automotive branch of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, told China Daily in an interview. 

He said the EU’s move is unreasonable and not good for trade development. He said the fact that Tesla has been temporarily excluded from the tariffs showed that the EU tariffs only target Chinese firms. 

However, he added that China is still willing to negotiate with the EU to avoid a full-blown trade war.

Peisch said it’s unclear what allegations and arguments China could have if the country would file a complaint to the WTO against the EU’s tariff action.

“Just saying ‘protectionism’ does not make it inconsistent with the WTO rules,” she said. “They would have to find a specific way that the EU has not complied with those rules. And from the face of it, I don’t know what that would be.”

Read: China to retaliate if Europe raises EV tariffs

Follow Jeff Pao on X: @jeffpao3

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