A new trade war? China files WTO complaint against EU over 38% tariff on electric vehicles

The Chinese government filed a formal complaint to the World Trade Organization (WTO) against the European Union (EU) regarding tariffs imposed on electric vehicles manufactured in China on Friday. The EU’s decision to implement these tariffs has sparked discontent in Beijing, prompting the Chinese government to launch investigations into exports of French cognac and European pork.

This retaliatory move has raised concerns among analysts that the situation could escalate into a trade war with the EU, potentially causing economic harm.

China resorted to the WTO dispute settlement mechanism “to safeguard the development rights and interests of the electric vehicle industry and cooperation on the global green transformation, China’s Commerce Ministry said.

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The EU has imposed provisional tariffs of up to 37.6% on EVs made in China, saying they unfairly benefit from government subsidies. China says its support for the EV industry conforms with WTO rules.

The two sides have until early November to try to resolve their differences, after which the provisional tariffs become official. China’s auto exports rose in July compared with the same month last year, while domestic sales fell, an industry association reported Friday.

China’s Commerce Ministry said that the EU tariffs violate WTO rules and undermine global cooperation on climate change.

China has significantly increased its share of the European Union’s electric-battery-powered car market, growing from 3 per cent in 2020 to 25 per cent currently, according to a report. This rapid expansion has raised concerns among EU officials, who fear that without intervention, the European automotive industry, which employs 2.5 million people and supports an additional 10.3 million jobs in the wider supply chain, could suffer substantial harm, it said.

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The EU’s experience with Chinese competitors in the solar panel sector, where subsidized Chinese companies gained a competitive advantage, serves as a cautionary tale. In response to these concerns, the European Union imposed provisional duties of up to 38% on Chinese electric car imports in July, citing “unfair” state subsidies. This move was made despite warnings from Beijing that it could trigger a trade war.

A European Commission investigation launched last year found that Chinese electric vehicle manufacturers received state subsidies that unfairly undercut their European competitors. The EU aims to protect its domestic industry as it transitions from thermal to electric power.