The EU is having a radical rethink of how to cope with the trade threat from Beijing — and its response has a very Chinese flavor to it.
Over the past years, EU trade policy has traditionally focused on building protective fortress walls, and last week’s decision to impose punitive tariffs on Chinese electric cars initially looked like another example of the classic defensive playbook in Brussels.
In a remarkable turn of events, however, the EU is now considering a next step that invites China’s electric vehicle (EV) makers inside the walls.
The big idea is to use the tariff threat to force Chinese carmakers to come to Europe to form joint ventures and share technology with their EU counterparts, according to conversations with four diplomats and two senior officials.
There are signs the formula is already attractive with EU carmakers. Franco-American-Italian carmaker Stellantis has formed a joint venture with China’s Leapmotor to start Europe operations in September. Spain’s EBRO-EV has teamed up with Chery — China’s fifth-largest automotive company — to develop EVs in Barcelona.
So Europe went from suggesting decoupling from China to de-risking and now this?
I want Chinese competition to lower prices.
Everyone wants cheap cars, but that’s not what this is about. This is about fair and competitive markets and products.
China heavily subsidizes their car industry. Actually everyone had been doing that, but currently China is doing it more.
Subsidies become a problem when they don’t serve to make necessities affordable in-country, but are used to boost sales in foreign countries, while hurting their local industry.
Now you might conclude that “why don’t we just subsidize or own manufacturers more as well so cars get as cheap as China’s?”
Well, where do you think the money for subsidies comes from? Taxes. So in the end, it’s just another scheme to make the general public pay for things that only part of the population needs, and it reduces pressure on manufacturers to innovate, leading to stale products. Which is a big reason why Western car companies are not competitive: the West has done exactly what China is doing now. We have subsidized the car industry massively in order to push or products into the global market. Those subsidies were considered worth it, because it created a trade surplus, effectively meaning wealth is transferred from the global market to mostly the car industry leaders, and a bit of it trickling down to workers as well.
After a while, the subsidies lead to corruption, inefficiency and lack of innovation, and the bubble bursts. That’s how you get histories like Detroit. Equivalents exist in almost any Western country.
A means to protect against subsidized products ruining the local markets is to impose tarrifs. The US has many of those, not only against China, but also against EU companies, especially in the car market. See chicken tax. American car manufacturers were so far behind after decades of heavy subsidies they couldn’t even compete with European cars ( and apparently still can’t, given that the chicken tax and similar tariffs still exist). In the end, tariffs run the same risk as subsidies: over time, a protected market means the industry can get lazy and keep selling the same, because competition is forced out of the market. Tariffs and subsidies are never a viable long term solution. Both can only serve strategic purposes: either providing actual essentials to ones population or nurture change ( eg subsidized regenerative energy build up) that only exist for a limited time. Tarrifs can be used to protect strategically important industry: e.g. military or technological cutting edge tech where you don’t mind paying extra for the privilege of maintaining in-country know how and manufacturing abilities.
You’re not entirely correct: China had heavily subsidized their EV industry.
The purchase incentive is gone. Many tax incentives are gone. Tax benefits for setting up factories are gone (closed ICE factories are being decommissioned rather than sold).
If you had said that in 2019, you’d be entirely correct. Today? Things are different.
Are we ignoring how China’s top EU exports are made up by MG (a British brand) and Volvo (a Swedish brand)? How Mercedez-Benz partnered with BYD to release the hybrid GLC? How Stellantis partnered with Leapmotor?
Chinese carmakers are already sharing technology with Europe. All this tariff serves to do is push them to sell hybrids, which are excluded from the tariff.
