Driving Different Roads to Face Off Against Chinese Electric Vehicles

Brussels and Washington seek to shield their auto sectors from Chinese competition. Nonetheless, Europe favors milder instruments, while the US is using a sledgehammer.

The number of Chinese electric vehicles is rising, with competitively priced models frequently surpassing those of their Western competitors. Compared to US and European-made EVs, BYD's Dolphin model costs little more than £10,000, while the Seal EV costs almost $24,000. Advanced features including improved entertainment systems and autonomous driving are standard on Chinese models.

Though they can't agree on how to address it, Western officials acknowledge that the Chinese challenge poses a threat to their own businesses.

Chinese electric vehicles (EVs) are essential to the US's participation in the wide-ranging trade and technology battle that President Joseph Biden's policies and the Trump administration started. EVs manufactured in China are subject to a 100% tariff under the Biden administration. Critics worry that the action will weaken existing dispute procedures, despite the US framing it as a necessary countermeasure to China's "unfair subsidies" and claiming it complies with international trade law.

US EV tariffs have the potential to cause a domino effect, not only by impeding international trade but also by driving up the cost of Chinese-made EVs in the US and reducing the supply of reasonably priced cars. The US auto sector is finding it difficult to develop its own low-cost EVs.

Europe is taking a measured tack across the Atlantic. Following an official anti-subsidy inquiry, the EU has imposed temporary duties on Chinese electric vehicle imports ranging from 26-48%. That exceeds the normal 10% duty applied to other non-EU vehicles.

The choice has made a rift clear. In an attempt to protect its strong but beleaguered domestic auto sector against low-cost Chinese imports, France is pushing for high tariffs. German automakers fear a tit-for-tat response because they have significant market shares in China and established relationships with Chinese companies.

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China has threatened to increase duties on large-engine vehicles from 15% to 25% in retaliation, a clear danger to luxury brands like Mercedes, BMW, and Porsche. Volkswagen's decision to abandon its long-standing employment preservation program represents the transformation of the German auto industry from overachievers to underdogs. France is not concerned about Chinese reprisals; instead, it is committed to defending its own industry and jobs. Comparably divided are other EU countries.

China's EVs appear to be picking up speed despite the criticism from the West. Beijing's financial support enables them to take on obligations and carry on growing. China's objective of localizing production within Europe might be expedited by the tariffs. BYD is currently constructing factories in Spain and Hungary.

China's monopoly over vital raw resources like germanium and gallium, which are required for the development of electric vehicles, is another issue. For the production of chips and batteries, both are necessary. Western manufacturers of electric vehicles rely on materials from a nation whose businesses are their most formidable competitors.

The irony is that rather than dividing them, this would actually strengthen Brussels' ties with Beijing and benefit China. In order to create inexpensive EVs, European automakers like Renault are already looking to collaborate with Chinese companies. Tesla, the top EV manufacturer in the West, may get caught in the crossfire since it produces a large number of its cars in China for sale to Europe.

Deep strategic divides may be seen in how the US and Europe handle Chinese electric vehicles differently. Washington is worried about defending homegrown businesses and keeping its technical lead. In order to thwart China's ascent, it has embraced protectionism and tariffs. Europe is aware of the dangers of upsetting a significant economic partner, so it continues to be cautious.

In the end, it's risky. China maintains its competitive advantage and its rising domination in green technologies thanks to its divergent positions on both sides of the Atlantic. The EU is still undecided, trying to strike a balance between competitiveness and collaboration, while the US is moving toward economic decoupling from China in key areas.

The US and the EU might reconcile despite their differences and resume their joint venture. They are both concerned about China's hegemonic position in the electric vehicle (EV) and green technology industries. The EU might have to support the US's all-in policy if the stakes get higher. China's green tech challenge requires a transatlantic policy that is united.

Maciej Filip Bukowski is a Research Fellow for the Earth System Governance Project and a Fellow for CEPA's Digital Innovation Initiative. He is a graduate of Cornell Law School and the Sorbonne, and he is currently working on his Ph.D. thesis at Jagiellonian University on the geopolitics of climate change. (*)

US and Europe Drive Different Roads to Confront Chinese Electric Vehicles This article has been published on cepa.org under the author name Maciej Bukowski