Slamming the Brakes: The EU Votes to Impose Tariffs on Chinese EVs

Trustee Chair in Chinese Business and Economics  >  Trustee China Hand

On October 4, EU member states approved tariffs on Chinese electric vehicles (EVs). The move follows a historic rise in imports from China, which spurred an in-depth investigation by the European Commission that found widespread state-support for China’s EV industry. The decision to approve tariffs is a major shift in the bloc’s relationship with China, whose surging auto sector is now seen as a threat to the EU’s own industry. This show of steadfastness in the face of China’s non-market practices will face the true test of unity in the months and years ahead.  

A Monumental Wave  

Rapid changes in trade flows precipitated the Commission’s decision to investigate the EV industry—Chinese EV exports to the EU grew by over ten-fold in value terms from 2020 to 2023 (Figure 1). The EU—and Europe more broadly—has been one of the main markets driving the internationalization of Chinese EV companies. This is all the more impactful because the EU has long been a net exporter of vehicles to China and this flow of trade has eroded one of the rare areas of trade where the EU actually runs a trade surplus with China. 

Figure 1: Monthly EV Exports from China to EU Member States (USD, Millions)

Additionally, while EU and U.S. automakers with large investments in China represent the majority of the EU imports, they also include a growing number of Chinese brands. In the course of its investigation, the European Commission found that the market share of Chinese-built EVs (including foreign brands such as Tesla) rose from 3.5 percent in 2020 to 27.2 percent of all EVs sold in the EU in the second quarter of 2024, with Chinese brands’ share growing from 1.9 percent to 14.1 percent of all EVs sold. 

That rapid rise in imports as well as broader concerns about industrial policy-induced overcapacity and highly competitive prices led the Commission to open an anti-subsidy investigation into Chinese-made EVs last year. The results of that investigation were released in July (See Figure 2) and detailed the extent of subsidization within the Chinese EV ecosystem across different segments of the supply chain and through various forms of government intervention, such as direct grants, preferential financing from state-owned institutions, subsidized inputs, and tax benefits.  

Figure 2: Timeline of the European Commission's Investigation into Chinese EVs 

The Commission’s accounting of the investigation was itself revealing, as it detailed the level of intransigence it faced in obtaining certain relevant information, especially from the state-owned automaker SAIC which ended up facing the highest duties as a result (See Figure 3). SAIC, for its part, argued that it had adequately responded to the Commission’s inquiry and that the sheer amount of information requested was unjustified and presented a high coordination burden between related companies within the firm.  

Figure 3: Final Duties Applied to Chinese-made EVs by Company

The proposed anti-subsidy measures were backed by considerable evidence and were designed to be compatible with WTO rules, in contrast to the blunter and more sweeping actions from Washington. However, the EU’s comparative restraint and adherence to global norms has not resulted in a more careful response from Beijing.  

Washington also announced steep tariffs on EVs from China during 2024, but China has been more strident in its criticism of EU measures and lobbied member states against the proposed duties via a flurry of visits from Chinese officials in the months leading up to the decision. Additionally, after the proposed duties were unveiled in July, China announced an anti-dumping probe into EU pork products and an anti-subsidy investigation into EU dairy products. On October 8, in the aftermath of the EU’s vote to impose tariffs, China’s Ministry of Commerce also announced new anti-dumping investigations into brandy from the EU, though the full extent of Chinese retaliation has likely yet to be seen. There have also been reports that Chinese officials instructed automakers to halt proposed investment plans in EU countries that supported the EV tariffs, though no official statement has been released.  

A Divided Decision 

While the vote on upholding the tariffs demonstrated considerable resolve on the part of EU member state governments, the outcome was hardly unanimous. The final tally was divided, with ten votes for, five against, and eleven members abstaining (See Figure 4) - in other words, more than half of the member states did not vote in the affirmative.  

Figure 4: How Member States Voted on the Proposed EV Tariffs

Some EU leaders have spoken publicly about their concerns over the imposition of duties before the vote. Spanish Prime Minister Pedro Sanchez publicly criticized the move during a visit to China and stated that member states should work toward compromise instead of potentially setting off a trade war with China. Ahead of the vote, German Chancellor Olaf Scholz said that negotiations with China should continue and voiced skepticism about potential tariffs several times. The German government was also notably split on this issue, with reporting that the foreign ministry, led by the China-skeptical Green party, was in favor of tariffs. French President Emmanuel Macron reaffirmed his support for the Commission prior to the vote, saying that the industrial policy support for Chinese automakers detailed in the Commission’s findings could risk derailing efforts to “produce and preserve [an] industrial footprint in Europe.”  

The division of votes may have been a strategic choice, meant to provide political space for the member states most exposed to potential Chinese retaliation (See Figure 5). Germany, for example, is by some measures the most interlinked economically with China. Its internal combustion vehicle trade makes Germany a net exporter of vehicles to China. German automakers also have significant investments in China including factories, joint ventures, and R&D facilities. 

Figure 5: Chinese Share of EU Member State Extra-EU Imports, 2023

Slovakia similarly forms a part of this larger German-centered auto industrial base and also voted against the measure. Hungary, a recipient of large EV and EV battery investments from Chinese firms like BYD and CATL, also opposed the tariffs.  

In the aftermath of the vote, China’s Ministry of Commerce is considering placing retaliatory tariffs on high-emissions internal combustion vehicle imports from the EU. These kinds of vehicles form a sizable portion of Germany’s auto exports to China and a majority of Slovakia’s (See Figure 6). In some ways, the vote demonstrates the limits of potential Chinese retaliation, since tariffs on high-engine capacity vehicles would mainly hurt countries that ostensibly already voted in line with China’s interests. The Chinese response also has rhetorical value, highlighting how China is becoming a global provider of green tech while the EU remains an exporter of high-emissions ICE vehicles. That rhetoric will likely play better for the domestic audience in China than in European capitals.  

Figure 6: Engine Capacity of Cars Imported by China for Select Countries, 2023

EVs are Just the Beginning 

Despite the less-less-than-unanimous vote, the decision to impose tariffs on Chinese EVs reflects a growing skepticism throughout the EU of China’s non-market practices. These concerns also come in the context of a growing movement to not only preserve the EU’s industrial base but also expand it to include the green industries of the future. In his report for the Commission on EU competitiveness, former ECB President Mario Draghi lays out this tradeoff clearly—recognizing that while increasing reliance on China may offer the quickest route to decarbonization, “China’s state-sponsored competition also represents a threat to [the EU’s] productive clean tech and automotive industries” and that the green economy “must become a source of growth for Europe.” 

The EV investigation was one of the first and most notable examples of this shift in attitude, but it is by no means the only example of the EU’s more skeptical stance towards its economic relationship with China. Under the leadership of President Ursula von der Leyen, the Commission has opened investigations into China’s unfair practices in a wide range of industries utilizing a broad set of tools.  

One of the most notable new tools is the Foreign Subsidies Regulation (FSR). The FSR was passed in December 2022 and gives the Commission the power to investigate investments within Europe which the Commission suspects have been aided in some part by a foreign government. This is meant to protect domestic EU firms from subsidized competitors. Green industries have been a particular focus of EU efforts. Investigations into solar and wind investments by Chinese firms have also been made through the new FSR, and a range of other investigations have been initiated using existing anti-subsidy and anti-dumping tools. (See Figure 7 which provides a view of the breadth of EU actions).  

Figure 7: Select EU Investigations Related to the PRC   

The Commission’s willingness to deploy defensive trade tools under Von der Leyden’s leadership has created considerable alignment between the EU and the United States on the need to more proactively address distortions created by China’s non-market practices. However, the EU’s approach has also been characterized by a commitment to transparency and desire to make remedies compatible with the existing WTO-led trading system. Unlike the 100 percent tariffs imposed by the Biden administration, the tariff levels imposed by the Commission do not make EV sales by Chinese firms completely unprofitable, rather they are intended to level the playing field and aim to maintain the competitiveness of domestic producers in light of Chinese state support.  

Whether this will prove successful still remains to be seen, with some analysis done by Rhodium group showing that Chinese automakers would still have a significant price advantage even at tariff levels higher than what the EU ultimately decided on. Some Chinese automakers are also looking to promote their plug-in hybrid models in the EU, as the tariffs only apply to battery electric vehicles. Still, there are of course advantages to maintaining some level of competition, as insulating firms completely from outside pressure could result in a stagnant and uncompetitive industry in which firms only serve their protected region.  

The EU has also been comparatively open to Chinese investment so far, with investments in both battery and vehicle manufacturing throughout the EU (See Figure 8). This approach could prove to have more global appeal—countries like Thailand, Turkey, and Brazil have all attracted investments from Chinese automakers and there have even been reports that the South African government is interested in courting Chinese firms.   

Figure 8: Chinese Investments in EV and EV Battery Factories in the EU

While this approach has been criticized by some as too idealistic, it is these values that also make the EU an important bridge between the United States and the rest of the world. The EU’s careful and detail-oriented approach, as represented by the EV investigation, is more likely to create consensus among other U.S. allies and is also more persuasive to third countries that find the United States’ unilateral and sweeping policies difficult to emulate. This contrast is more likely to intensify under a future Trump administration given his pledge to levy wide-sweeping tariffs against all imports, from China and allies. 

For that reason, it is all the more important that the EU remain committed to its current course. Negotiations between the two sides are ongoing, with the EU reiterating that any resolution, such as an agreement on a minimum EV import price, should serve to remedy the distortions the Commission has identified. While negotiations may lead to an end to this “EV chapter,” it is merely one phase of what has already become a contentious debate about how the EU should respond to China’s non-market practices and the distortions they create in international markets. There is also the risk that if Chinese retaliation is not managed well, it will create a consolidated group of members opposed to more proactive responses to unfair practices from China. The Commission has done the heavy lifting of documenting these practices and proposing appropriate measures. Now it is up to member states to stick to their decision.  

Related Trustee Chair Activity  

Scott Kennedy, “The Chinese EV Dilemma: Subsidized Yet Striking CSIS,” Trustee China Hand Blog, June 20, 2024. 

Ilaria Mazzocco, Green Industrial Policy: A Holistic Approach, CSIS Brief, February 27, 2024. 

Ilaria Mazzocco, Balancing Act: Managing European Dependencies on China for Climate Technologies, CSIS Brief, December 13, 2023.  

Ilaria Mazzocco and Gregor Sebastian, Electric Shock: Interpreting China’s Electric Vehicle Export Boom, CSIS Brief, September 14, 2023. 

Scott Kennedy, The Coming NEV War? Implications of China’s Advances in Electric Vehicles, CSIS Brief, November 18, 2020.