China investigates EU trade practices following new electric vehicle tariffs

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10th July 2024 – (Beijing) In response to new countervailing tariffs imposed by the European Union on Chinese electric vehicles (EVs), China has initiated a formal investigation into EU trade barriers. The Ministry of Commerce announced the probe, which will include questionnaires, public hearings, and on-site inspections, with a completion deadline set for 10th January.

The investigation was triggered following grievances lodged by a Chinese commerce chamber against the EU’s anti-subsidy practices that began affecting Chinese firms late last year. This move by China reflects escalating tensions between the two economic powerhouses as they navigate complex trade relationships.

As of last Friday, provisional tariffs by the EU on Chinese EV manufacturers have been enforced, although negotiations are ongoing. The final decision on these tariffs is expected within four months. The EU claims these measures are necessary to counteract the unfair advantages Chinese EV makers receive from state subsidies, with provisional duties reaching up to 37.6%.

Recent data highlights a downturn in Chinese EV exports, which fell 13.2% in June to 86,000 vehicles—marking the third consecutive monthly decline. This reduction aligns with the implementation of EU’s provisional tariffs and a new customs registration procedure introduced in March to potentially apply these duties retroactively.

Despite these challenges, China’s overall vehicle exports in June rose by 26.9% year-on-year, bolstered by strong demand from markets like Russia and Mexico. In the domestic arena, EV sales during the first half of 2024 surged by 35.1% to 4.33 million vehicles, significantly outpacing the growth in total vehicle sales.

However, the broader economic outlook for China remains cautious amidst a lingering property crisis and demographic challenges, which could affect domestic demand. Exports continue to be a vital component of China’s economic strategy, particularly as trade tensions with Western nations intensify.

Negotiations with the European Commission are set to continue, with a crucial decision due in October regarding the imposition of the new tariffs for a five-year period. In retaliation, China has threatened legal action and has started probing certain European imports like brandy and pork for potential anti-dumping violations.

Analysts suggest that the heightened trade barriers could compel Chinese automakers to seek alternative markets. Fitch Ratings warns that the imposing EU tariffs might undermine Chinese competitiveness in the region, encouraging these manufacturers to invest in other markets such as Brazil, Thailand, and Australia.

Moreover, industry experts, including those from the U.S. advisory firm Eurasia Group, have raised concerns over potential political and economic repercussions from China’s accelerated transition to EVs, which may lead to overcapacity in internal combustion engine vehicles—a situation that could exacerbate political tensions with non-Chinese automakers.