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Beijing has apparently instructed Chinese automakers to halt investments in European countries that support higher tariffs on Chinese electric vehicles, Reuters reported Wednesday.
The warning comes after reporting earlier this month found Chinese automakers planned to stop expanding in Europe.
It’s the first retaliatory measure to come after the European Union finalized duty hikes of up to 45% on Chinese-made EVs Wednesday after planned negotiations between Brussels and Beijing to avoid increased tariffs fell through.
Beijing is taking a carrot and stick approach, however, seemingly rewarding countries that abstained or voted against the higher EV tariffs. On a diplomatic visit this week, Finland was promised visa free entry for its citizens to China and greater cooperation on green energy.
Chinese EV companies have maintained strong leads this year: BYD on Thursday reported a Q3 revenue of $23.2 billion with about 1.1 million car sales in the three-month period — outpacing Tesla’s quarterly sales for the first time. However, BYD’s domestic price war with other Chinese EV makers means profit has taken a hit, with gross margins slipping by about 0.2 percentage points year-on-year.
SIGNALS
China’s approach is deepening Europe’s divisions
The bloc’s vote on tariffs for Chinese EVs underscored the divisions between its member states — “music to the ears of Chinese policymakers,” an expert at the European Council on Foreign Relations wrote. Countries like Germany and Hungary, which both rely heavily on China for trade and foreign investment, are finding themselves increasingly “at loggerheads” with more hawkish EU members like France. “Beijing has long made dividing Western allies a priority in a bid to prevent the emergence of bolder European policies or even joint US-EU measures, such as export controls on critical technology, on China,” the expert added.
Higher duties unlikely to slow Chinese EV lead
The European Union’s new duties on Chinese EVs are graduated depending on the company, and those that are below the 40% mark are likely not going to be high enough to slow the gains Chinese automakers have made in the EU market, up from 3% in 2022 to 20% this year, analysts at Rhodium Group noted. Even if duties erase some or all of the profits on some EVs, analysts added, it’s possible that EV makers “would be willing to forgo profits in the short-term and sell at a loss in order to gain market share in the world’s second biggest EV market.” Ultimately, the EU doesn’t stand to gain from raising duties beyond a certain point, The New York Times noted: A 100% tax like the US, for example, would make Chinese EVs “prohibitively expensive,” hampering the bloc’s green energy transition.
If elected, Trump’s protectionism could impact the EU
China will likely wait until after the US presidential election on Nov. 5 to enact broader retaliatory measures on the EU, Bloomberg noted. While both candidates have promised increased tariffs on Chinese goods, Trump has floated a sweeping plan that could have far more significant economic implications for China than the EU’s duties. “The only people more worried about the US election than Americans are the Chinese,” an expert on Chinese trade policy told the outlet. If Trump is elected, he may also pressure the bloc to toughen its position on China, even as he takes a protectionist approach: ”In theory, a Trump administration would be less geopolitical than a Harris administration and would push everything much more into the realm of economic protectionism,” an analyst told Euronews.