MNI: China Hopes For Deal With EU On EV Tariffs - Advisors

China still hopes to negotiate a deal with the European Union for it to reduce or drop hefty new tariffs on Chinese electric vehicles, possibly based on promises to restrict pricing and export volumes, but could consider threatening retaliation against high-value European products such as medical instruments or airliners, policy advisors told MNI.

“It is still likely that China and EU will strike a deal, as the EU process allows for review,” said He Weiwen, a former economic and commercial counsellor at the Chinese Consulate General in San Francisco and New York, speaking after Wednesday’s announcement by the EU of provisional tariffs of between 17.4% and 38.1% on Chinese carmakers from July 4. Definitive measures are to be imposed four months after the imposition of the provisional duties.

In contrast to the U.S., which recently imposed 100% tariffs on Chinese EV exports for what He said were political reasons, the advisor, also a senior fellow at the Center for China and Globalisation, said the EU has motives to seek a deal, so long as China can address its economic concerns. Setting a minimum price and a volume limit on imports within a certain period could be one solution, said He, referring to the settlement with the EU following its accusations of dumping of Chinese solar panels in 2013.

Chinese carmakers may still find it profitable to sell to Europe even with the new tariffs, but Beijing is still likely to retaliate, said He, arguing that Brussels was violating WTO rules. (See MNI EM: WTO First Step For China In US Tariff Response - Advisors)

COUNTERMEASURES

Zhao Yongsheng, director of the French Economic Studies Center at the University of International Business and Economics, agreed that Beijing would coordinate negotiation with countermeasures. These are likely to particularly target countries which it considered to be promoting the tariffs, such as France, he said, and could take aim at high value-added industrial products heavily reliant on the Chinese market, such as medical instruments or Airbus. It could also threaten to delay Sino-French nuclear energy projects, Zhao said.

While Chinese media have pointed the likelihood of temporary tariffs on the import of large fossil fuel-powered cars, as well as investigations on EU dairy and pork products, Zhao said that Beijing had noted Germany’s opposition to the tariff move and may wish to avoid punishing firms such as BMW and Mercedes.

“Putting tariffs on agricultural products is also not a good idea, given its relatively small amount and proportion in trade,” he said, pointing also to the pledge by President Xi Jinping to increase imports of French foods made when he visited France in May.

Growing protectionist sentiment however may mean that the best China will be able to achieve would be to persuade the EU to reduce rather than drop the new tariffs, perhaps cutting them back to 15-20% from the current 25% average, Zhao said.

Both He and Zhao said Chinese EVs are likely to continue to face rising trade barriers, with Turkey’s move on June 8 to impose a 40% additional tariff possibly being followed by more countries. But a deal with the EU could set a precedent for reducing trade frictions in areas such as alternative energy, said He.

Increased Chinese investment in Europe is also likely to be part of a longer-term solution to resolving tensions, said Zhao.