The European Union will impose additional tariffs of up to 38.1% on electric vehicles imported from China starting next month, escalating the global trade war and increasing the cost of cars from companies like BYD and Tesla in Europe.

Chinese electric vehicle manufacturers have aggressively entered the European market amidst a domestic price war and years of technological advancement. The European Commission announced individual tariffs: 17.4% for BYD, 20% for Geely, and 38.1% for SAIC. Other manufacturers not sampled by the commission will face a 21% tariff. In comparison, non-cooperating automakers will be hit with a 38.1% penalty.

China has warned of retaliatory measures targeting agriculture, aviation, and large-engine vehicles. Beijing has already launched an investigation into certain European alcoholic beverages, with results expected soon.
Although the investigation targeted Chinese automakers, the higher tariffs—from the current 10%—will also impact several Western car manufacturers, including Tesla, which ships the Model 3 from Shanghai to Europe, as well as BMW and Renault. The current tariff on European car imports to China stands at 15%.

These measures come as the EU walks a tightrope to protect its regional automotive industry, which employs millions of well-paid workers, alongside a green agenda aimed at eliminating CO2 emissions from transport. The EU’s electric vehicle ambitions, including a ban on new combustion engine cars by 2035, have faced setbacks recently, with markets like Germany removing purchase incentives.
German Chancellor Olaf Scholz warned against any restrictions on automobile trade with China, stating earlier this month that “we do not close our markets to foreign companies, as we do not want this to happen to our companies.” German automakers, including Volkswagen and BMW, would be the hardest hit by a trade dispute, having collectively sold 4.6 million cars in China in 2022.

Western manufacturers have rejected mainly the tariffs. Mercedes-Benz CEO Ola Källenius has been vocal about the need to keep markets open. The luxury carmaker, which considers China its largest market with 36% of total deliveries, is particularly vulnerable to retaliation as it imports all its lucrative S-Class and Maybach limousines into China. The country is also the largest market for VW and BMW.

After losing much of its solar industry to China a decade ago, the EU has launched a series of trade investigations against Beijing over unfair subsidies, particularly in the clean tech sector. The measures against electric vehicles follow those of the US, which introduced a 100% tariff on Chinese electric vehicle imports last month. However, this is more symbolic as hardly any vehicles are currently shipped.

The EU’s decision comes as the outlook for electric vehicle sales dims. The analysts estimate that China continues to dominate electric vehicles, batteries, and global supply chains for raw materials and components, prompting retaliatory tariffs from Washington and Brussels.
China has urged Brussels to refrain from imposing sanctions, indicating it is ready to impose tariffs of up to 25% on imported cars with large engines, targeting brands like Porsche, Mercedes, and BMW. In recent weeks, Commerce Minister Wang Wentao and other officials have toured Europe to argue against Brussels’ decision.

This new trade war offers no easy path back to the old world order. It jeopardizes a Europe that can’t afford its ambitious goals. The decision also highlights the glaring discord between France and Germany on the issue.