(Bloomberg) — The European Union’s member states are set to vote Friday on whether to impose tariffs as high as 45% on electric vehicles from China, a decision that could threaten to further ratchet up tensions with Beijing.
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The vote comes after the European Commission, the EU’s executive arm, determined that China unfairly subsidized its EV industry and proposed the tariffs to protect European companies.
If passed, the measures risk triggering retaliatory duties from China, the bloc’s third-largest market for exports. Beijing has condemned the move as protectionism and has threatened tariffs on European dairy, brandy, pork and cars.
Shares of Chinese EV makers have rallied in recent weeks thanks to China’s stimulus blitz and strong September delivery figures, with XPeng Inc. and Li Auto Inc. up more than 30% over the last two weeks in Hong Kong. Still, they are down for the year given concerns about pending tariffs and increased competition.
The 27-member union was split on whether to move forward with the aggressive trade measure. Germany has called for the EU to drop the tariff plan, with Economy Minister Robert Habeck warning it could lead to a trade war. French President Emmanuel Macron reaffirmed his support for the levies on Wednesday, saying the level of Chinese subsidies was “unbearable.”
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EU rules stipulate that the European Commission can impose the new duties for the next five years unless 15 member states representing 65% of the bloc’s population vote against them.
If tariffs are implemented, Chinese EV makers will have to decide whether to absorb them or raise prices, at a time when slowing demand at home is squeezing their profit margins. The prospect of duties has prompted some Chinese automakers to consider investing in factories in Europe, which might help them dodge tariffs.
Still, Daiwa Securities analyst Kevin Lau said Europe’s tariff hikes will have a “minor impact” on Chinese manufacturers because the region accounts for only a fraction of their total sales. Europe contributed between 1% to 3% of overall sales for BYD Co., Zhejiang Geely Holding Group Co. and SAIC Motor Corp. in the first four months of this year, he estimated.
The EU and China will continue negotiations to find an alternative to the tariffs despite the coming vote. The two sides are exploring whether an agreement can be reached on a complex mechanism to control prices and volumes of exports used to avoid anti-subsidy tariffs.
An escalation of the trade spat would hit German automakers including Volkswagen AG and BMW AG the hardest, which collectively sold 4.6 million cars in China in 2022.
–With assistance from Catherine Ngai.
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