EU/China tariff war re-ignites

EU/China tariff war re-ignites

EU/China tariff war re-ignites 150 150 Batteries International

June 14, 2024: The European Commission re-entered the China EU tariff war on June 12 announcing that it is preparing to penalize ‘battery electric vehicles that benefit from unfair subsidization.’ This follows the results of an investigation that started last October.

 

Although the EC said it was prepared ‘to discuss these findings and explore possible ways to resolve the issues identified in a WTO-compatible manner’, any immediate resolution of the issue is unlikely to happen.

Instead ‘provisional’ duties are to be imposed from July 4, if agreement about the subsidies cannot be found. A final levels of the tariffs will be finalized in November. They will, as is typical with such rulings, probably last for five years.

The Commission says the PRC subsidies “pose a threat of economic injury to European EV producers: these have allowed the subsidized imports to rapidly increase their market share in the EU to the detriment of the Union industry.”

Mike Dunckley, CEO of Catalyst Solutions, says that in a broader geopolitical picture, Europe is inevitably going down the same path as the US. “There’s also a general sense within the automotive industry that it is moving into panic mode,” he said.

On May 14 US president Jo Biden said, when raising the EV tariff rate from 25% to 100%, “China’s government has used unfair, non-market practices. Its forced technology transfers and intellectual property theft have contributed to its control of up to and even 90% of global production for the critical inputs necessary for our technologies, infrastructure, energy, and health care — creating unacceptable risks to America’s supply chains and economic security.”

To most observers the European position is an open and shut case. For the last decade it has been clear that China has been subsidizing the country’s automotive and battery businesses.

The most expensive part of any electric vehicle is always its lithium battery.

One delegate speaking to Batteries International on the sidelines of the EUROBAT general assembly in early June said: “China completely dominates the lithium battery business, roughly 90% of all cells manufactured come from the country.

“Although the subsidies have been general knowledge for ages, nowadays China’s battery industry doesn’t need them in the same way as they did before. Firms such as CATL can crank out battery packs at prices that other competitors find almost impossible to match.”

China’s potential stranglehold over the entire sector is profoundly worrying for European car makers. “Companies such as BYD, for example, can mass produce quality EVs for at least two thirds the price of their Western counterparts. China has a huge glut of lithium battery packs that it needs to dispose of and it will offer them in electric cars at rock bottom prices,” said the delegate.

BYD is the largest EV manufacturer in the world and in December 2023 said it plans to build a car factory in Hungary. It is the first Chinese manufacturer to plan a European factory.

The Commission said: Such a surge of low- priced imports, gaining significant market share in a rapidly growing market in which a significant and sustained rate of investments is needed as the Union market transitions to full electrification, would lead the EU [car] industry to incur heavy losses which could prove rapidly unsustainable.”

The Chinese government is poised to retaliate.

In April, the country passed a law to strengthen its ability to hit back should the US or EU impose tariffs on its exports. This could cause problems for German car makers who earn around 30% of their sales from China.

A recent IMF paper shows that restriction on tariffs are just part of a larger picture where there has been a tit-for-tat escalation on subsidies. The study says there is a 74% probability that a subsidy for a given product in a big economy is met with a subsidy for the same product from another big economy within a year.

The EU imported around 440,000 EVs in the 12 months ending in April and market forecasts suggest that China’s share of the market will increase from 8% of sales to 15%.

An affiliate of BYD, the Chinese car maker and lithium battery giant, has commissioned a new generation of freighters called the BYD Explorer series, to ship cars around the world.

These are the first car transport ships made by a Chinese shipyard explicitly intended to export Chinese EVs. The first, BYD Explorer 1, has been delivered and in total six ships, each capable of transporting 7,700 cars, is reported in the media as costing a total of $700 million.

 Recent press reports say Chinese companies have 47 car freight ships on order, Buyers include SAIC Motor, Chery Automobile and EV giant BYD, as well as shippers such as COSCO and China Merchants, on behalf of Chinese automakers.

The arrival of such volumes of affordable cars will have a chronic impact on the EV and battery markets in Europe. Conversations at the EUROBAT conference this June suggested that a huge influx of EVs and lithium batteries would cripple the still fledgeling European efforts.

“One of my fears is that it will kill our lithium battery industry stone dead,” one delegate told Batteries International. “Our industry is easily more than a decade behind the curve, mainly because of the European Union’s tardiness and obsession with regulating the world to bits.”

There is a lot of stake for China too.

“What’s not so well understood in the West is that the Chinese government’s position has not been thought through as much as it should have been,” says Dunckley at Catalyst.

“They’ve created a situation of massive overcapacity which is also crippling to themselves. They have vast factories full of product which, for the moment, has nowhere to go. They are also prepared to sell at cost, just to stay afloat. It’s precarious.”

Sample individual duties the Commission would apply in three weeks’ time to Chinese car producers based on its evaluation of their subsidies are variable. For BYD the EC suggested an extra 17.4% (it already pays a tariff of 15%); For GEELY, 20% and for SAIC Motor, 38.1%.

 The level of tariff is also related to whether Chinese car makers had cooperated with the EV investigation: If they did, the average weighted duty was 21% and for EV producers that did not cooperate it was 38.1%.

Definitions of a subsidy

The European Commission said: “The subsidy practices consist, inter alia, of (1) direct transfer of funds and potential direct transfers of funds or liabilities, (2) government revenue forgone or not collected, and (3) government provision of goods or services for less than adequate remuneration.

“In particular, the Commission has found evidence, among others, of various grants, provision of loans, export credits and credit lines provided by State-owned banks or bonds underwritten by State-owned banks and other financial institutions at preferential terms, provision of preferential export insurance; income tax reductions and exemptions, dividend tax exemption, import and export tax rebates; VAT exemptions and rebates; and government provision of goods (such as raw and input materials as well as components) and services for less than adequate remuneration.”