EU-China staring match on EV duties will continue — even after they take effect

BRUSSELS — The EU will go ahead and slap duties on unfairly subsidized Chinese car companies from Wednesday, while keeping the door open to hashing out a compromise with China.
Blow by blow, how did the biggest-ever trade fight between Brussels and Beijing escalate — and how did this case become so deeply political?
Not now — although the Chinese government piled on the pressure right up to the death in an attempt to get a deal. In its latest attempt, it invited European experts to Beijing to continue talks on a complicated system of minimum price guarantees that, China hopes, would render the EU duties moot.
The Chinese Ministry of Commerce also tried to make it sound as if the European Commission had made a formal proposal for such a price floor, but a spokesperson for the executive refused to comment on that suggestion.
The Commission instead published a legal text on Tuesday in the Official Journal outlining the duties. They will take effect from Wednesday. That finally ruled out a last-minute breakthrough in the talks, which one Chinese business insider on Monday had judged as “very slim.”
After site visits in China, the EU concluded that EV-makers like BYD, SAIC and Geely were receiving lavish subsidies from the government in the form of cash, discounts and harder-to-quantify benefits such as provincial land grants. Furthermore, China makes as much steel as the rest of the world combined, and its leadership is trying to address lower demand by exporting that steel glut — in the form of both metal and finished vehicles.
Back in June, a senior EU official described Chinese EVs as “subsidized from mine to EU harbor.” That led the Commission to slap duties ranging from 7.8 percent on Tesla’s Chinese output to 35.3 percent on MG owner SAIC. Once the duties take effect, importers will have to charge this premium on top of the price at the border.
No, because the EU found that different carmakers enjoyed different levels of subsidies. The rates are also based on how cooperative the companies were with the Commission’s investigation. SAIC, which faces the highest duty, cooperated less with the EU executive than BYD, for example, which will see only 17 percent.
Probably not, because the Chinese carmakers should be able to absorb the duties and still turn a profit. The hope is that their market share will not continue to rise, giving EU carmakers some breathing space to compete.
Depends who you ask. Germany fears that its car industry, which is heavily exposed to China in terms of both sales and production, will suffer trade retaliation similar to what France’s cognac sector — the first collateral damage in the trade fight — has already faced.
On top of that, Chinese brands like BYD are expanding with new factories into Turkey and Hungary. As soon as these become operational, the company can produce locally and be impervious to the measures.
Also, demand for electric vehicles is slumping across most markets. European makers of both cars and batteries are also feeling the crunch, with Volkswagen threatening to close three plants in Germany. Swedish battery producer Northvolt, which counts VW among its main investors, announced layoffs last month.
On paper, that’s exactly what they’re supposed to do — create a time and investment window allowing them to catch up under the conditions of fair global competition. In reality, however, it’s more complicated. European automakers are struggling in the Chinese market — their most lucrative — and that is eating away at their bottom lines. 
China is also at least one full generation ahead of Europe’s auto champions on EV technology, and that is causing handwringing across the bloc and a rethink of whether to ditch internal combustion engines. The European People’s Party campaigned on reversing the EU’s de facto ban on selling new ICEs from 2035, and the automotive industry has made similar calls.
The debate, however, threatens to squander any window that the investigation and the subsequent duties might offer automakers. As Chris Heron, secretary general of e-mobility lobbyist AVERE said: “Looking beyond duties, Europe’s fundamental competitiveness challenge remains. We still urgently need to reduce business costs across the EU electric vehicle value chain, to give our companies the platform for competing with China in the long term.”  
No. Beijing simply rejects the findings of the EU investigation and maintains that no subsidies are being offered. It would also be complicated for China to acknowledge the EU’s findings, as such an admission would undermine its export-oriented economic model. Chinese EV-makers will simply absorb the full consequences of the duties, which amount to a hit on profits and some bad publicity.
For the EU, and especially for Ursula “Economic Security” von der Leyen, the case sends a strong political signal to China: We can no longer ignore your model of fueling overcapacity in steel, minerals, manufacturing and other sectors. Europe is rightly worried about its industrial and economic future. And China should get used to listening to those concerns.
Camille Gijs contributed reporting. This story has been updated.