Beijing, China

Beijing is pressing the European Union to drop its preliminary tariffs on Chinese electric vehicles (EVs) by July 4, as reported by China's state-controlled Global Times. This request follows an agreement between both parties to engage in new trade talks.

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The European Union has proposed provisional duties of up to 38.1% on imported Chinese-made EVs, set to take effect on July 4. These measures are part of an investigation into alleged excessive and unfair subsidies to Chinese EV manufacturers. In response, China has repeatedly called for the cancellation of these tariffs, indicating a willingness to negotiate to avoid a potential tariff war. Beijing, still affected by the U.S. tariffs imposed during the Trump administration, has stated it will take all necessary steps to protect Chinese firms if a trade conflict ensues.

Recent developments in EU-China trade talks

The push to restart tariff talks was initiated after a call between EU Commissioner Valdis Dombrovskis and Chinese Commerce Minister Wang Wentao. This dialogue occurred during a visit to China by Germany's economy minister, who noted that discussions remain open. According to the Global Times, the optimal outcome would be the EU scrapping its tariff decision before the July 4 deadline.

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The underlying issues

The EU's move towards protectionism stems from concerns that China's production-focused development model could flood European markets with inexpensive goods. This fear is heightened as Chinese companies increase exports amid weak domestic demand. China has denied accusations of unfair subsidies and overcapacity, asserting that its EV industry's growth is due to technological advantages, market dynamics, and robust supply chains.

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Zhang Yansheng, chief research fellow at the China Center for International Economic Exchanges, highlighted the geopolitical undertones of the EU's investigation. "When European Commission President Von der Leyen announced she would investigate China's new energy vehicles... I had an intuitive feeling it was not only an economic issue but also a geopolitical issue," Zhang stated. He argued that starting a tariff war based on capacity utilisation and insufficient demand considerations is unfair.

Historical context of EU-China trade relations

Trade relations between the EU and China deteriorated significantly in May 2021 when the European Parliament froze ratification of a landmark investment treaty. This decision followed tit-for-tat sanctions over allegations of human rights abuses in China's Xinjiang region. Further tensions arose when China downgraded diplomatic ties with Lithuania, urging multinationals to sever connections with the Baltic state after Vilnius invited Taiwan to open a representative office.

Potential retaliatory measures by China

While Beijing calls for dialogue, it also prepares retaliatory measures should the EU proceed with its tariffs. The Global Times reported that China might launch a tit-for-tat anti-dumping investigation into European pork imports, which the commerce ministry recently announced. Additionally, China hinted at possible anti-subsidy investigations into European dairy goods and tariffs on large-engined petrol cars.

Jacob Gunter, lead analyst at the Berlin-based China studies institute MERICS, indicated that Beijing might raise tariffs on Europe-made cars with engines of 2.5 litres or more. He also suggested that agricultural products like pork and dairy could be targeted. On the EU side, ongoing investigations using a new toolkit assembled by Brussels could result in measures against Chinese products ranging from medical devices to steel pipes.

The escalating trade tensions between the EU and China over electric vehicle tariffs highlight broader geopolitical and economic conflicts. As both sides prepare for further negotiations, the outcome will significantly impact the global EV market and trade relations between these major economic powers.

(Inputs from Reuters)