EU Plans to Impose Significant Tariffs on Chinese Electric Vehicles Leave Room for Debate on UK’s Response
Tariffs have long been a topic of debate, with many arguing that they do more harm than good. The recent announcement by the European Union to impose tariffs on Chinese electric vehicles (EVs) has sparked even more controversy, raising concerns about the potential economic impact and the best course of action for the UK.
As seen in the past, the imposition or increase of tariffs often invites retaliation from the targeted country or countries. This not only hurts consumers, but also has a detrimental effect on the wider economy. Martin Wolf, the chief economics commentator for the Financial Times, highlights this in his recent column, stating that tariffs can hurt imports and decrease demand for the currency in which those imports are denominated. This, in turn, can push up the value of the currency of the country imposing tariffs, making their exports less competitive. The end result is a negative impact on the exports of the country that initially imposed the tariffs.
The EU’s decision to impose tariffs on Chinese EVs, which was met with opposition from Germany, is a prime example of this. The tariffs, which range from 38.1% on SAIC (owner of MG) to 17.4% on BYD (owner of brands like Dolphin and Seal), are in addition to an existing 10% levy on imported cars. This means that EU citizens purchasing an entry-level EV for €30,000 could end up paying an additional €11,450. Unsurprisingly, China has expressed discontent with this move, with the Chinese ministry of commerce spokesperson He Yadong calling it a “blatant act of protectionism.”
The potential for retaliation from China is high, as evidenced by their ongoing anti-dumping investigation into European brandy exports, particularly cognac from France. This could have a ripple effect on the EU’s food and beverage exports to China, causing concern for industries such as Spain’s pork exports and leading to a decline in share prices for companies like Remy Cointreau, the world’s second-largest cognac maker.
However, it is not certain that the EU’s tariffs will have the desired effect. Industry experts believe that Chinese EV makers, who have a significant advantage in terms of size and efficiency, may be able to absorb the tariffs and still sell their cars profitably in the EU. Additionally, some Chinese companies may choose to base more manufacturing in Europe to designate their vehicles as EU-made, as seen with BYD’s plans to build a gigafactory in Hungary and Volvo’s shift of EV production from China to Belgium.
The irony is that these tariffs could also negatively impact European carmakers themselves. For example, Renault produces affordable EVs under the Dacia brand in China for export to Europe, but their Chinese joint venture partner is set to be hit by the tariffs. This could have a ripple effect on the entire European automotive industry.
As the UK considers its response to the EU’s move, it is important to weigh the potential consequences carefully. The UK has no obvious advantages to imposing similar tariffs on Chinese EVs, as it could lead to retaliation and harm industries such as Scotch whisky and UK-built cars. Furthermore, given the efficiency and lower costs of Chinese EV makers, tariffs may not even provide a price advantage for British manufacturers.
In the end, it is clear that tariffs often do more harm than good. They hurt consumers, cost jobs, destroy wealth, and create mistrust between countries. The UK must carefully consider the potential consequences before following in the EU’s footsteps.