EU Member States Divided on Chinese EV Tariffs

Fewer than half of EU nations explicitly support the measures, but opposition may not be enough to block it.

An EU proposal to put permanent tariffs on electric vehicles (EV) from China has won the support of fewer than half of member states, a vote this week showed, exposing divisions within the bloc and raising questions about the Brussels-designed policy’s future.

Earlier this month the European Commission – the EU’s executive arm – announced it would place temporary tariffs on Chinese EVs of up to 37.6%, in an effort to protect European carmakers from what it said were “unfair” subsidies provided by Beijing.

The decision came after the US government announced in May it would put 100% tariffs on Chinese EVs in response to what the White House called “unfair trade practices”.

To become permanent, the EU tariffs must face a vote among member states. But in the provisional, non-binding poll held by the commission on Monday to gauge support, just 12 of the 27 member states voted in favour of the tariffs, according to sources cited by Reuters.

Four explicitly opposed the tariffs, while 11 abstained – including Germany, which is home to Europe’s biggest car manufacturing industry.

Although this mixed result would probably not be enough to stall the policy, it signalled unease among a majority of EU countries about the commission’s approach, and highlights the continent’s dependence on China – both as a key supplier and an important market for exported cars.

Germany’s biggest carmaker, Volkswagen – which sold more than 3 million cars in China last year, and would be particularly vulnerable to retaliatory measures – has been one of the most vocal critics of the tariffs.

“Vokswagen don’t want to lose China – it’s their biggest market,” Bill Russo, Founder and CEO of Shanghai-based advisory firm Automobility, told ESG Investor. “And they need the Chinese supply chain in order to build cheap EVs in the rest of the world.”

High stakes

Europe’s carmakers are rushing to embrace EVs as the world shifts away from carbon-emitting technologies. But they are far behind their Chinese peers, which already have a mature battery supply chain and are mass-producing the cheapest EVs on the planet.

China is also the biggest consumer market for EVs. Of the approximately 14 million new EVs sold globally in 2023, nearly 60% were registered in China, compared to just under 25% in Europe, according to the International Energy Agency.

Foreign carmakers have traditionally had a strong presence in China, but their market share is rapidly falling as locally made cars – particularly EVs – increase in popularity. In 2024, 32% of car sales in the country across both gasoline and EV were made by foreign brands, down 26% from 2020, according to Automobility Limited. Domestic EV powerhouse BYD leapfrogged Volkswagen this year to become China’s best-selling car brand.

European firms don’t just export to China. They also have factories locally, and around half of the country’s EV exports are actually made by foreign brands – including BMW and Renault, which therefore will be subject to the EU tariffs. Many European EV makers also have joint ventures with Chinese companies.

All this adds up to a complex picture for European carmakers that will not necessarily be solved by tariffs, Russo said.

Unfair advantage

The European Commission claims much of China’s success comes from subsidies that the government has granted the sector, which it argues create an unfair advantage over its domestic competitors.

“The commission has concluded that the BEV [battery electric vehicle] value chain in China benefits from unfair subsidisation, which is causing a threat of economic injury to EU BEV producers,” it said on July 4.

Russo argues Beijing’s decision to subsidise its EV sector is a necessary one. “No pivot to a new paradigm can occur in an entrenched industrial base, like the automotive industry, without government intervention,” he said.

He was scathing of the US’ 100%-tariff approach, which he described as “hiding behind a trade wall” – adding that it would just prompt China to set up factories in alternative jurisdictions.

“By pricing Chinese EVs out of its market, the US has turned EVs into gentrified, not democratised products,” he said. “This will only slow down the transition to low-carbon transport.” This was an argument the Financial Times editorial board made in a recent leader.

The EU’s approach of engaging with China and explaining its position is more sensible, Russo argued.

“This is a smart way to do it,” he added. “Show what you are willing to do. Open up the conversation, and then negotiate it. That’s a more nuanced way to do it than the US approach.”

However, by only putting the tariffs on full battery EVs and not on hybrid EV and traditional gasoline cars, Europe may have left the backdoor open to Chinese imports.

“You think the Chinese don’t make hybrids and gasoline cars?” Russo asked. “They do – 78% of the cars leaving China today have a gasoline powered engine it. So the easy way around the tariff is to say, ‘You don’t want my BEVs? Buy my hybrids’.”

Will China retaliate?

Following Monday’s poll, the European Commission will now consider comments from stakeholders before putting its final policy to member states for a binding vote. Unless a qualified majority – comprising 55% of member states covering at least 65% of the EU population – votes against the tariffs, they will come into force for five years.

If it does go through, the EU’s more measured approach – which is tailored to individual companies and aims to comply with World Trade Organization (WTO) rules – is unlikely to price Chinese imports out of the market, as US tariffs have.

Speaking at an event in London late last month, Sam Lowe, a trade expert and Partner at advisory firm Flint Global, said China’s retaliation to the EU tariffs would likely be relatively contained.

“There’s the legal route, so it could start a WTO case,” he said. “From the EU’s perspective, that’s brilliant. That’s how the system is supposed to work: start a case, run it through, and then maybe you have to make some modifications or tweak it slightly.”

Beijing could also take a “quasi-legal” retaliatory approach and start its own investigations into European imports – as it has done with French brandy and Spanish pork, which Lowe said was deliberate as Spain and France supported the investigation into China’s EV subsidies.

“You’ve then got the hostile approach, where you lock up executives and close down plants of other companies for not particularly good reasons,” he said, adding however that this option was unlikely – “at least at first”.

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