China, EU to talk about EV tariffs as ‘first step’ to avoid trade war

The EU and China will begin talks on EV tariffs, following a video conference meeting between Chinese Commerce Minister Wang Wentao and EU Trade Commissioner Valdis Dombrovskis on Saturday, according to a trade ministry statement. The statement gave no further details on when the talks would begin.

The announcement came as German Vice Chancellor Robert Habeck paid a three-day visit to China, the first by a high-level European leader since tariffs were introduced earlier this month. Commenting on Saturday, Habeck called the planned talks a “first step,” with more needed to bring the two sides together.

Wang met with Habeck on Saturday and expressed Beijing’s displeasure to the German minister, according to a statement from China’s commerce ministry.

China’s media is already celebrating the announcement of the talks, with state-owned media Global Times calling it evidence of Beijing’s “great sincerity” in trying to resolve trade disputes through negotiations.

Talks can be a welcome sign that both sides are open to negotiations. “Both sides are taking an open attitude, which may indicate that Chinese OEMs may be charged a lower rate than previously announced,” said Vincent Sun, an equity analyst at Morningstar. Sun also notes that the prices are also affecting cars made in China from European companies, such as BMW.

Last October, Brussels launched an anti-subsidy investigation into EVs made in China to determine whether they are unfairly benefiting from Chinese state support.

Beijing, for its part, has criticized the investigation as “protectionist behavior,” and ignores China’s highly competitive EV industry.

Germany has criticized the EU’s decision to raise tariffs following an anti-subsidy investigation (largely supported by France). German chancellor Olaf Scholz has called for a reduction in the tax rate, according to Financial Times again Politics. German transport minister Volker Wissing also warned that rising tariffs could risk a “trade war” with China.

The German Association of the Automotive Industry has also warned that the potential damage from the tax may outweigh the benefits.

Germany, the EU’s largest economy, has a large trade relationship with China. The Asian economy accounted for about a third of the German car industry’s sales last year. It was also Germany’s biggest trading partner for ten years until the US took over this year.

A potential China-EU trade war

Both China and the EU have stepped up their trade threats in recent months since the October anti-subsidy investigation.

China first launched an anti-dumping plan on European brandy in January, followed by an investigation into European pork last week.

Chinese automakers are reportedly asking Beijing to impose retaliatory tariffs on European gas cars entering China.

On the other hand, the EU is currently investigating the Chinese government’s support for industries such as wind turbines and medical devices.

The announced European EV prices are already threatening to change the behavior of Chinese EV manufacturers. More than 80% of Chinese automotive and industrial companies are not very confident about investing in Europe in the near future, according to a recent survey by the China Chamber of Commerce to the EU and the China Economic Information Service.