The EU and China Agree to Hold Talks Over Looming EV Tariffs

China and the European Union have agreed to hold further talks as the deadline for implementing steep import tariffs on Chinese electric vehicles looms. The EU first implemented the tariffs several months ago after cheap Chinese EVs began flooding into the regional bloc and the European Commission launched a probe into Beijing’s electric vehicle subsidy program.

The investigation found that China had given its automotive sector an unfair advantage by pumping tens of billions’ worth of subsidies into the sector for over a decade. The subsidy program allowed Chinese carmakers to manufacture EVs at low cost and sell them cheaply, an advantage that could have allowed them to muscle European carmakers out of their home markets.

The Commission initially set provisional import tariffs of up to 38% for electric cars manufactured in China, and a recent Commission vote saw many EU nations approve tariffs of up to 35.3%  on Chinese electric cars. In the meantime, however, both the EU and China will hold further discussions to avoid causing tensions between the two trade partners.

To that end, European Commission Executive Vice President and Trade Commissioner Valdis Dombrovskis recently had a video call with Wang Wentao, China’s Minister of Commerce, where the two leaders discussed the European Commission’s ongoing probe into Chinese EV imports. The communication comes soon after a contentious vote on import subsidies that saw 10 nations approve the tariffs, 5 voted against the measure, and 13 abstain from the vote.

Beijing was harshly critical of the decision, noting in a statement from a Ministry of Commerce spokesperson that imposing import tariffs on Chinese electric cars wouldn’t solve any issues. The European automotive sector also criticized the decision to tax Chinese electric vehicle imports as China is one of its largest markets and the move could potentially impact European carmakers.

The recently approved import tariffs will be stacked on top of the EU’s standard 10% levy on all auto imports. Chinese EVs are already subject to a 100% import tariff in both Canada and the United States, making Europe the only major market where it can sell its electric cars.

Data from the Atlantic Council shows that international Chinese electric vehicle sales increased by a whopping 70% last year to hit $34.1 billion. Nearly 40% of these sales occurred in Europe. Imposing steeper import tariffs would be a huge blow to China’s electric vehicle carmakers and make it virtually impossible for the East Asian nation to sell its affordable EVs at low prices in foreign markets.

Chinese EV makers like NIO Inc. (NYSE: NIO) are likely to take a keen interest in the planned talks between the EU and China since their outcome could affect the prospects of these companies that were looking to claim a bigger share of major foreign markets.

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