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October 4, 2024 - 3:00pm
In a hugely significant vote this morning, EU’s trade diplomats have allowed the imposition of hefty new tariffs on Chinese electric vehicles as part of a move seen as a key marker for future EU trade policy.
For China-friendly Hungarian leader Viktor Orbán, the raising of EV tariffs to as high as 45% means an “economic cold war”. He added today that “if this continues, the European economy will die.” Orbán’s dramatic rhetoric was likely intended as a repudiation of his French counterpart Emmanuel Macron, who earlier this week claimed the EU “could die” for the opposite reason — by not reforming its “classical” free trade approach in response to aggressive subsidies in the USA and China.
New EV tariffs are part of the more bullish approach encouraged by figures such as Macron and European Commission President Ursula von der Leyen. They are intended to bolster Europe’s flagging automotive industry amid the switch to Net Zero; major manufacturers such as Volkswagen are threatening to shutter EV production in European plants as they are outstripped by cheaper Chinese rivals — and Tesla — on EV sales.
Today’s vote on tariffs was divisive, with five countries voting against and 12 others abstaining. In the end, the move to curb Beijing’s EV dominance only gained clear support from a minority of countries lacking significant exposure to the Chinese car market. The tariffs were, on the other hand, actively opposed by countries suffering far more from the slump in automotive manufacturing.
Germany, the EU’s automotive powerhouse, voted against the tariffs as Chancellor Olaf Scholz fears “harming ourselves” given the potential for retaliatory measures from Beijing. Berlin is in a bind on EV production; car manufacturers being undercut by cheap Chinese rivals are, simultaneously, highly dependent on the Chinese export market. Cars make up the lion’s share of German exports to China, so retaliatory measures could harm manufacturers just as much as cheap competition on the EU market.
As with Russia prior to the invasion of Ukraine, the EU — particularly Germany — appears to be locked in a toxic economic relationship with an unfriendly power. Beijing has hijacked the green energy transition to undermine key European industries, and Chinese state subsidies keeping EV prices “artificially low” are an example of aggressive policies which Macron believes justify a bullish response. “When both the US and China do not respect the rules, we should not be the only one in the room to just abide by the rules,” he declared on Wednesday.
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SubscribeWhat a frickin mess. As per usual, the technocrats can’t see the forest through the trees. The real problem is EV mandates. When the govt tries to manage the economy, the free market is distorted and the economy and consumers suffer. Get rid of the mandates and China will be stuck with a bunch of cars no one wants to buy. Problem solved. These people are determined to sewer the economy with policy based on pride and delusional luxury beliefs.
I agree with Macron, and it’s not often I say that. If other countries are going to use vast state subsidies to undercut European manufacturing then you don’t have free trade in the true sense, all you’re doing is letting your industrial base be destroyed by foreign powers
Every state and economy subsidizes markets of interest. Either directly or through monetary policy. The West has neglected production and can simply not compete here.
That can also be true, but why should they let themselves be an open market for foreign companies to make money while putting their own citizens out of work?
China isn’t using vast state subsidies to undercut European manufacturing of EVs. China has a real competitive advantage in part thanks to the entire supply chain for battery manufacture being offshored by us to China in the 90s. We gave them the headstart.
EV battery manufacturing is dirty, minerals intensive, and energy intensive. European energy policy, regulations, its political environment, and taxes makes making EV tech in Europe more expensive than anywhere else in the developed world.
Stellantis (owner of brands like Peugeot and Fiat) and Tesla and VW etc all buy or licence EV battery and drive train technology from CATL, a Chinese company. Nearly all Western car makers simply didn’t have any relevant investments in EV technology when European regulators decided on Net Zero. China did, not least because there is a huge natural market in China for EVs due to its relative cost of coal-fired electricity vs imported petrol and the dozens of mega cities it has with a serious air pollution problem. So all those subsidies we paid our Western firms to develop EVs ended up buying Chinese tech. We subsidised China.
The UK has just shut down its second from last blast furnace supplying high quality virgin steel to mills making hot rolled strip steel. This is used in car making. You can’t achieve the requisite steel quality using recycled scrap steel from an electric arc furnace. And the replacement electric arc furnace will be supplied by the most expensive electricity in the developed world making the most expensive steel in the world. This is being repeated across Europe. So another competitive advantage has been handed to China.
Then there is education. China turns out a million engineering graduates every year. High status, well paid jobs await. Europeans don’t want to study engineering. We have to import students from Asia – including China – to fill the rolls of our engineering departments. Many go back to China and China’s backyard giving impetus and resources to sustain and grow industry. Technician education is even worse. We churn our more unemployed sports diplomas than fitters and turners, and again we have had to import staff to work the lines turning ammunition for Ukraine.
China isn’t the bogieman. Ed Miliband, his predecessors and associates and all the technocrats across Europe and the USA have destroyed the industrial ecosystems needed to remain advanced manufacturing nations. What’s left across all the nations of NATO isn’t even enough to supply a small war in Ukraine let alone mass produce the quantities of batteries, electrical and electronics to supply European EV manufacturing. So we pay a premium to buy it from China and ship it here and then moan about Chinese dominance.
Excellent summary of our endless folly.