This article is part of illuminem Editorial's ongoing commentary on current sustainability issues

China and the European Union (EU) are poised for high-stakes discussions this week (24-30 June)  concerning proposed tariffs on Chinese electric vehicles (EVs) taking effect on July 4th. Beijing has been expressing strong objections to the EU’s plan to impose duties as high as 48%, resulting in renewed economic tensions. These developments occur amid growing economic frictions and strategic manoeuvring between China and Western nations, exacerbated by the global shift towards green technologies.

The EU’s proposed tariffs, announced after an anti-subsidy investigation initiated last year, are intended to counteract what Brussels perceives as an unfair advantage enjoyed by Chinese EV manufacturers, mainly due to centralised state subsidies. Germany, a key player in EU automotive manufacturing, has been vocally critical of these measures. German Vice-Chancellor Robert Habeck, during his recent visit to Beijing, welcomed China's agreement to engage in talks but emphasised that more steps would be necessary to resolve the issue.

Habeck's visit, which included meetings with Chinese officials, notably the Western-critical Minister of Commerce Wang Wentao, highlighted the economic interdependence between China and Germany. Germany's car industry, encompassing giants like BMW and Volkswagen, relies heavily on the Chinese market, making it particularly vulnerable to any retaliatory measures from Beijing.

Habeck, who also serves as the German Economy and Climate Minister, has decidedly rejected the term "punitive tariffs". He emphasised that the aim was not to punish but to restore competition on equal terms. The European Commission had spent nine months analysing in detail whether Chinese companies had benefited from state subsidies. These tariffs served to offset these advantages. Nevertheless, Habeck also expressed hope that the tariffs could still be averted. He could not negotiate on behalf of the EU, as this was the task of the EU Commission.

Chinese Premier Li Qiang, speaking at the World Economic Forum in Dalian, defended China's EV sector, asserting that the rapid growth in this industry stems from China's comparative advantages and investments in green technologies. Li dismissed allegations of over-capacity and unfair subsidies, suggesting that China's technological advancements and economies of scale are the real drivers of competitiveness.

Beijing has already retaliated by launching an investigation into EU pork products and hinted at further measures, such as increasing import taxes on large-engine vehicles from the block. The Chinese government maintains that the proposed EU tariffs are politically motivated and not universally supported within Europe.

As the EU and China prepare for formal consultations, there is speculation that China may invoke WTO rules (including the General Agreement on Tariffs and Trade and the Dispute Settlement Understanding)  to challenge the EU's tariffs. Experts like Jian Junbo from Fudan University suggest that China could leverage these rules to urge the EU to cancel its tariff decision while promoting a message of cooperation over confrontation. Beijing is also expected to discuss potential countermeasures during these consultations.

Wan Gang, the former Chinese minister of science and technology and a key architect of China’s EV policy, has called for the resumption of talks on the Comprehensive Agreement on Investment (CAI) between China and the EU. This agreement, which has been stalled since 2021 because of political tensions, could pave the way for enhanced economic cooperation and reduce the current friction over tariffs.

Wan argues that renewed investment talks could address some of the underlying issues driving the current tensions, such as the imbalance between Chinese exports and foreign investment. He believes that sustained dialogue and negotiation are crucial for overcoming trade disputes and fostering technological innovation.

The EV tariff dispute is part of a broader context of rising trade protectionism and strategic competition between China and Western nations. The EU’s consistent alignment with the U.S. on trade policies, including increased scrutiny of Chinese imports and alliances with the West’s rivals (notably Russia), reflects the general Western wariness of China’s economic model and its geopolitical impact.

President Joe Biden's administration has imposed even higher tariffs on Chinese EVs, reaching up to 100%, although the volume of imports affected is smaller compared to the EU. A reduction in Chinese EVs, making up the majority of the market share in many Western countries, available or affordable to European consumers could lead to a noticeable regression in EV use generally. It is safe to conclude that the EU’s motivation for the tariff increase is driven more by geopolitical and economic protectionism than climate policy.

So, while the  EU seeks to protect its industries from perceived unfair competition, China is determined to assert dominance in the global EV market. The ongoing talks will certainly be crucial in determining the future of their economic relationship, particularly in the field of green technologies; but it is yet to be seen to what extent the powerplay will affect carbon emissions directly.

Watch this space to keep updated as illuminem Editorial observes and comments on all things sustainability

Do you have any feedback or do you have a topic you would like us to cover? Click here to get in touch

Are you a sustainability professional? Please subscribe to our weekly CSO Newsletter