Automakers that cooperated in the investigation but were not sampled would be subject to a weighted average duty of 21 percent. Other EV producers which did not cooperate would be subject to a residual duty of 38.1 percent. Notably, these tariffs apply to not only Chinese automakers—but also to Western firms that make EVs in China for the European Union, such as Tesla, BMW, and Volkswagen. The investigation’s report did include a provision that permits companies not included in the sample to request an “individually calculated duty rate” at the definitive stage, potentially allowing Western automakers to receive lower rates.
Q2: Why did the European Commission announce these tariff increases?
A2: The European Commission stated that the purpose of the tariffs is to “remove the substantial unfair competitive advantage” of Chinese EV supply chains “due to the existence of unfair subsidy schemes in China.” As with U.S. law and consistent with World Trade Organization rules, EU trade anti-subsidy measures must establish that “imports benefit from countervailable subsidies” and that the “EU industry suffers material injury.” The commission’s announcement suggests that it identified sufficient evidence on both these accounts, although it did not disclose any specific findings. The commission reportedly sent letters to BYD, SAIC, and Geely in April saying that they had not provided enough information related to the investigation, suggesting that the commission would be forced to rely on the concept of “facts available”—which typically allows for greater leeway to impose higher duties.
In China, Beijing and local governments have historically provided a wide range of support for domestic EV manufacturing, including purchase subsidies, tax rebates, and below-market loans and equity. For instance, BYD received €2.1 billion in direct government subsidies in 2022. Although Beijing has recently dialed back purchase subsidies, softening domestic demand combined with high manufacturing capacity have encouraged domestic automakers to offload excess inventory to foreign markets—particularly Europe, where Chinese EVs often sell for at least 20 percent more than the same models can fetch in China. EU imports of Chinese EVs surged from $1.6 billion in 2020 to $11.5 billion in 2023. Chinese and Chinese-owned EV brands grew from 1 percent of the EU market in 2019 to 8 percent in 2022, with the European Commission warning that figure could reach 15 percent by 2025. While these figures do not yet indicate Chinese market dominance, rapid Chinese share growth and long-term ambitions—such as BYD’s commitment to reach 5 percent of Europe’s EV market—have created alarm in the European Union.
Given that Chinese EVs have already entered the European Union in large numbers and many European automakers rely on Chinese manufacturing, it is unlikely that the new tariffs are designed to fully block off these imports. The commission explicitly indicated as much in its stated aim “not to close the EU markets to [Chinese EV] imports.” That said, the commission no doubt sees a surge of Chinese EVs as a threat to its burgeoning EV industry—which is already being squeezed on margins by inflation and high interest rates. Many EU observers see parallels between the surging EV imports and the rise of Chinese solar panel imports in the 2000s and 2010s, which critics credit with the erosion of Europe’s solar manufacturing base. The commission wants to avoid a similar fate for European EV manufacturing.
Q3: How are the European Union’s new tariffs different from recently announced U.S. tariffs?
A3: Although it comes just weeks after the Biden administration’s tariff hikes on Chinese EVs, the European Commission’s decision is notably different. While the former is arguably largely symbolic—given the small number of Chinese EVs currently being imported into the United States—and overtly protectionist, the latter is an attempt at a more narrowly tailored trade measure that balances (1) support for a nascent EV industry competing with a heavily subsidized competitor and (2) ensuring continued trade with Chinese manufacturing supply chains and China’s consumer automotive markets, which are both critical to the European Union’s auto industry. This distinction was apparent in the rhetoric used to describe the measures. The Biden administration adopted a directly protectionist tone, while the European Commission explicitly disavowed protectionist intentions and stated that the aim of the tariffs was to “ensure that EU and Chinese industries compete on a level playing field.”
Pursuant to these divergent policy aims, the EU tariffs differ from the U.S. tariff hikes in both their magnitude and scope. The Biden administration quadrupled existing rates to reach 100 percent tariffs for Chinese EVs—well above the upper bounds of the European Union’s measures. The U.S. tariff hikes apply equally across automakers manufacturing EVs in China, while the commission plans to apply more tailored rates based on subsidy estimates and levels of cooperation with the anti-subsidy investigation. The Biden administration’s measures also include EV components—namely, lithium-ion batteries—while the EU tariffs only apply to finished EVs. These differences also reflect the statutory authorities through which the tariffs were enacted. The United States used its Section 301 authority, which permits a broad range of actions in response to foreign trade practices deemed unfair. The European Union relied on its countervailing duty authority, which allows more targeted responses to specific subsidy rates.
While they are clearly distinct from the U.S. tariff hikes, however, whether the European Union’s new measures can successfully strike a balance between protecting domestic industry and minimizing disruption to its trade relationship with China remains to be seen. Much of this will depend on how China and its automotive sector choose to respond as well as whether the measures can enable greater pricing parity between Chinese and European EV brands.
Q4: What implications might the preliminary tariffs have for the European Union’s EV markets and its transition to clean energy?
A4: The preliminary EU tariffs are unlikely to significantly reduce the growing tide of Chinese EVs entering the European market. A 2023 Rhodium Group study estimated that EU tariffs would need to reach the 45 percent to 55 percent range to make the European market commercially unappealing for Chinese manufacturers based on existing margins. While the proposed combined 48 percent duties on SAIC (and automakers “which did not cooperate in the investigation”) fall into this range, the rates for Geely and BYD remain below it. Even with the tariffs, BYD would reportedly still generate higher EV profits in the European Union than it does in China and could even pass along tariffs to consumers and remain lower priced than competing European models.
China’s EV industry expressed low levels of concern in its initial assessments of the tariffs’ effects. Cui Donghshu, secretary general of the China Passenger Car Association, said that the measures “won’t have much of an impact on the majority of Chinese firms,” and Chinese producer NIO reaffirmed its “unwavering” commitment to the European EV market. Many Chinese automakers have also expanded their European manufacturing, a trend that is expected to accelerate in response to the tariffs.
There is some evidence that European and U.S. automakers with operations in China could face negative impacts. The previously mentioned Rhodium Group study, for instance, found that duties in the 15 percent to 30 percent range could have a greater impact on the ability of Western automakers like BMW and Tesla—which produce EVs on slimmer margins than Chinese firms—to export from their Chinese manufacturing facilities compared to China-based automakers. Volkswagen, BMW, and Tesla have been among the most outspoken critics of the commission’s anti-subsidy probe and preliminary tariffs. Tesla has requested an individually calculated duty rate based on an evaluation of its subsidy rate, and it is possible that affected European automakers will do the same—which would likely lead to more lenient rates for Western automakers.
The commission reiterated that the tariff hikes do not undermine its goal of transitioning to clean energy. However, tariffs could drive elevated EV prices in European markets—and therefore depress European demand for EVs. Tesla, for instance, has already announced price hikes on its Model 3 vehicles. The commission is also investigating Chinese clean technology such as solar and wind, indicating a broader reluctance to allow widespread low-cost Chinese green exports to enter the European Union as it attempts to build up domestic green industries, even if they would boost demand. The United States has also faced scrutiny along this front, with the European Commission expressing concerns about the adverse impacts of the 2022 Inflation Reduction Act.
Q5: How might China respond to these new preliminary tariffs?
A5: China’s response to the preliminary tariffs could take many forms—most notably, retaliatory tariffs on European exports of cars and other goods. Beijing has mentioned the possibility of retaliation in areas like food and agriculture and aviation, as well as the possibility of a 25 percent tariff on imports of “cars equipped with large displacement engines.” German automakers cited the risk of retaliatory tariffs as a key risk of the commission’s anti-subsidy probe, given that China represents the leading global market for passenger vehicle sales. China already announced an anti-dumping investigation into European liquor in January of 2024, which is expected to affect imports of French cognac.
Chinese officials and automakers technically have opportunities to respond to these findings and encourage the commission to modify the countervailing duties before its final determination. Notably, Vice Premier Ding Xuexiang announced plans to travel to Brussels to “deepen” the EU-China “green partnership.” That said, Beijing has consistently rejected claims that its support for domestic industry constitutes unfair subsidization in similar cases, and China’s Ministry of Commerce has called the tariff announcement a “nakedly protectionist act.” Additionally, Chinese firms have shown little willingness to cooperate with the European Commission thus far. Therefore, retaliatory measures seem more likely than successful further negotiations at this stage. Trade action would likely be limited, as China may be wary of a broader trade war due to potential negative impacts on domestic industry and fears of encouraging increased coordinated transatlantic economic action against China.
Q6: What does the European Commission’s decision say about its current trade policy objectives?
A6: Like the United States, the European Union is pursuing intertwined—and often competing—objectives of building up and protecting domestic industries, reducing Chinese control of supply chains, and transitioning to green technologies. However, the deep interdependence of the EU and Chinese auto industries makes the European Union less inclined to significantly reduce reliance on China in the sector. While this more moderate approach leaves European EV manufacturers exposed to Chinese competition, it allows many of the same manufacturers to use China for cheap manufacturing. The European Union’s trade policy thus theoretically harms the clean energy transition less than more restrictive trade measures by allowing access to (and competition with) low-cost Chinese technologies. Whether the European Union can achieve this without undermining its own EV industry—either via a trade war or by failing to stop the flood of low-cost imports from BYD and others—remains to be seen.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jack Whitney is an intern with the Scholl Chair in International Business at CSIS.