Another Bad Idea from the European Commission: Trade War against E-Cars Made in China

An investigation into China’s state funding of e-cars exported to Europe was announced on Sept. 13 by Commission President Ursula von der Leyen. The move, based on charges of a lack of transparency on the Chinese side, could result in punitive tariffs on Chinese-made vehicles. This would particularly hit German automakers which produce a lot in China, and would be subject to any retaliative measures from Beijing, experts warn. The fact is that European governments, including Berlin, also allow substantial subsidies for e-car producers, but that is not mentioned in the recent charges.

China’s Commerce Ministry reacted promptly, accusing the EU of “naked protectionist behaviour” and warning that the probe “will have a negative impact on China-EU economic and trade relations… China will pay close attention to the protectionist tendency and follow-up actions of the European side, and firmly safeguard the legitimate rights and interests of Chinese enterprises.”

Gabriel Felbermayr, director of the Austrian Institute of Economic Research (WIFO), told the Frankfurter Allgemeine Zeitung (Sept. 15) that in a potential trade war over e-cars, “China exports more to the EU than the other way around, and is therefore more vulnerable to punitive tariffs overall. For Germany, however, an escalating trade dispute would be difficult to endure. Germany is an exporting country and also produces heavily in China. The BMW electric car ‘iX3’, for example, is only manufactured there – the company would then also have to pay the tariffs, for example. As a proportion of its gross domestic product, Germany would be hit harder.” The auto industry is Germany’s single largest industrial sector, and produces more than any other European country.

However, orders for e-cars declined by 50% in Germany in the first six months of 2023, as against the same period in 2022. This decline is not due to increased sales of Chinese-made e-cars, nor to the search for lower priced vehicles, but rather to the lack of confidence that battery re-charger capacities will improve in the near future, and to the profusion of anti-car polemics and of protest actions, including road blockades staged by radical ecologists, that call into question the future of any automobiles in the cities. These are obstacles that Chinese exporters also face.

At Volkswagen, this has direct consequences: the plant in Zwickau, touted as a pioneer in the Group’s shift to e-cars, announced short work schedules lasting for several weeks, and will not renew expiring contracts for employees with temporary contracts. This plant exclusively builds e-cars for the VW, Audi and Cupra brands. It is feared that other employees with fixed-term contracts could meet a similar fate and find themselves out of a job. At present, around 10,700 people work there.