In the end, the October 5th vote on tariffs for EVs produced in China proved to be undramatic. With ten countries voting for the measure, five against and 12 abstaining, the European Union will soon join countries like the US and Canada in restricting the excess supply of autos from China from overwhelming home markets.
Germany voted against after fighting the tariffs to the bitter end. Although the vote marks a victory for European Commission President Ursula von der Leyen, she will be wise to take note of the fractiousness in how the bloc engaged in its first stand against Chinese mercantilist policies.
With the countervailing duties soon to be in place, the EU must look forward and plan for how it will handle Chinese economic interests in coming years. Restrictions on EVs are well and fine but likely to only be the first of many clashes with the Middle Kingdom to come.
Will the EU choose to engage with China and alleviate tensions between the two players, or will it choose the US route and seek to decouple economically from the country entirely?
The former seems more likely, and the bloc’s follow-up to the tariffs will be a sign of what is to come. While having no qualms about imposing the tariffs, the Commission has simultaneously made it clear that it will seek a negotiated settlement with the Chinese. Offers of export quotas and price caps were on the table to stave of the duties but was turned down.
However, such a scheme is likely to prove the solution, if one is found, in the end, although skewed more to the liking of the EU. This may be for the best of all parties. Especially since earlier impositions of countervailing trade measures, like those on Chinese solar producers in 2011, did not end up saving the European producers they were tailored to keep afloat.
A negotiated solution could calm tensions around Chinese investments in the EU. With growing frustration over EV exports and in the wake of the uncertainty sparked by the launch of the EV investigation last autumn, Chinese auto makers increased their investments in the bloc. Both in new projects and existing ones alike.
These have come under Chinese scrutiny after the bloc voted to approve of the tariffs.
Chinese investments are better than pure exports. In the eighties, the US faced a similar situation when it responded to a wave of Japanese auto exports. To alleviate growing US anger and to avoid import quotas, Japanese auto makers started opening manufacturing plants in the US. These came to be seen as good employers and tensions calmed.
The same could be the case in Europe. If auto jobs are created and not solely destroyed by Chinese competitors, things may not look as bad in the end. Simultaneously, knowhow from the more advanced Chinese brands will spread to European firms as workers switch from company to company, closing the tech gap between the bloc and eastern rivals.
If EU officials really want to make sure that local Chinese manufacturing works for everyone, they can take a page out of the Chinese playbook and make them enter joint ventures with European brands.
EU officials also must be judicious in how they use other tools against Chinese interest. For instance, the Foreign Subsidies Regulation (FSR) has long been viewed as a tool to target Chinese investments and procurement bids in Europe, although the Commission denies it. Gauging by the response of China’s Chamber of Commerce to the EU, who has called the FSR a tool of “economic coercion under the guise of economic security,” China seems to view it the same way.
It was therefore promising that the Commission approved of Chinese company Haier Smart Home’s takeover of Carrier's commercial refrigeration business. It’s not a politically sensitive deal, many of which have already faltered under EU scrutiny, but it shows that the FSR is not a blanket denial of Chinese investments in the EU.
The EU tariffs is a decisive step in showing that Europe is not to be the dumping ground for excess supply from China or anywhere else. It should look into similar trends in other categories as well, like batteries and electrolysers. However, the assertiveness needs to be paired with a willingness to find compromises with China. Neither is served by global tensions spiraling out of control
This op-ed was originally published in the EUObserver
Varg Lukas Folkman is a Policy Analyst in Europe’s Political Economy programme.
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