China weighs retaliatory options against Europe over EV tariffs

China is expected to respond cautiously to the European Union's recent tariff hikes on Chinese electric cars, aiming for limited and targeted retaliation. The EU's move, which will increase tariffs on Chinese vehicles to as much as 48% starting next month, aligns it with actions taken by the United States, Turkey, and other nations to curb imports from China.

China's Commerce Ministry and its EU chamber of commerce have criticised Brussels' decision following its announcement on Wednesday. The concern for China is that an overly aggressive response could provoke a broader trade conflict and further align trans-Atlantic nations against China, contrary to President Xi Jinping's goal of fostering "strategic autonomy" in Europe.

According to Joe Peissel, an economic analyst at Trivium China, "If China responds with aggressive tariffs, they risk triggering a trade war. Beijing is eager to avoid this scenario." Already facing tensions with the US, China is also navigating increased coordination among advanced economies. China is anticipated to counter the recent increase in tariffs on electric cars from the European Union with cautious measures and an eye on proportional retribution.

The worry for Beijing is that more assertive response could escalate into a wider trade war, and pull more trans-Atlantic nations against China, which goes against president Xi Jinping’s aspirations. In the opinion of Joe Peissel, an economic analyst at Trivium China, Tariff D, "If China responds with aggressive tariffs, they risk triggering a trade war and Beijing is eager to avoid this."

Even as China struggles to manage its relations with the US, the former is encountering the increased cooperation among developed nations, including the Group of Seven that recently started discussing China while addressing the issues of the skewed global economy.

Merics, a Berlin-based think tank that focuses on the China, expects Chinese reprisals to potentially involve agriculture – most notably cheese and pork. To revenge for the investigation of electric vehicles by the EU, China has also launched an investigation into the European liquor products including brandy and hit the hardest on France which is a major exporter of brandy.

Merics’ lead analyst Jacob Gunter pointed out that Beijing is unlikely to target EU goods considered strategic in Chinese industries including machinery, industrial goods, chemicals and medical technology.

While the Europeans have raised tariffs on Chinese imports, this may not entirely harm the Chinese Auto makers since they are known to operate efficient production lines and have also been gearing up to build more production facilities in Europe. It may not wish to turn it into a tariff war, at the same time it needs to make sure that the electric vehicles developed by its domestic automotive companies will be able to enter Europe. This could be reversed if overreaction threatens these goals.

China’s response so far has been less of action and more of words; the Ministry of Commerce responded to the EU’s action saying it was protectionism and the Chinese Chamber of Commerce in EU said it was unfounded. The MoC has implied other possible future actions through WTO. Both sides still have the opportunities for direct negotiations and positive political and economic relations despite current tensions.