RPT-MNI: EU-China Near EV Deal Amid Fears Over Trump, Growth

(Repeats story first published on Aug 5)

MNI (BRUSSELS) - China and the European Union are increasingly likely to wind down a dispute over Chinese electrical vehicles, European officials and experts told MNI, with one official expecting the EU to make provisional tariffs permanent but also reassure Beijing that its markets will remain open.

With China’s economy slowing and the prospect of a potentially aggressive U.S. trade policy if Donald Trump wins a second term in November, both sides have reason to cool tensions after the EU announced provisional countervailing duties averaging 20.8% on Chinese electric vehicles from July 5, the sources noted. A vote by EU states on whether to make the tariffs definitive may be pushed back from November, as that month will see both the arrival of a new European Commission and U.S. elections, one EU source said.

While it is possible that China could announce further counter measures in addition to levies imposed on European pork and cognac, and also pursue its dispute resolution case lodged at the WTO, this will not worry Brussels unduly, the source said, adding that it was likely that the EU will make its tariffs permanent but that they had been set at a level which did not bar Chinese vehicles from its market.

A further sweetener to relations could be the localisation of Chinese EV manufacturing in the EU, the official said. (See MNI EM: China Expecting EU Tariffs On Electric Vehciles-Advisors)

WTO DISPUTE

“For the Commission there is not much room for manoeuvre so I don’t think they will give up tariffs. They can’t say the investigation was wrong," the source said.

“The WTO action which China is seeking is not very dangerous and could take years. For China it is a good way of keeping some pressure on the EU and US, but without triggering a full-fledged trade war,” the source added.

Consultations between China and the EU on resolving the EV dispute are likely to get underway in September or early October, the source said, ahead of the vote by member states on whether to make the tariffs definitive. This will be decided on a Qualified Majority basis, meaning that 15 countries with at least 65% of the bloc’s population will need to vote against duties for them to be rejected. (See MNI INTERVIEW: Risk Draghi Report Ushers In EU Protectionism)

Meanwhile, it seems likely that China will play a parallel strategy with promises of EV investments and jobs in individual EU countries. China has proposed production projects in Hungary and mooted similar investments in France while Italy’s Prime Minister Giorgia Meloni suggested during a recent visit to Beijing that she would welcome such activity in Italy.

“It’s very difficult for member states to resist if China comes and proposes battery production or something in the country, everyone wants investment and jobs in Europe,” said an industry source.

FEARS OVER U.S. TRADE

France and Spain have been among the strongest proponents of tariffs, but Germany has pushed for a settlement, with the country’s car industry putting pressure on Berlin.

Europe is worried about worsening economic ties with Asia at a time when trade relations with the U.S. could come under strain, while China is also keen to avoid deepening the dispute, said Alicia Garcia-Herrero, Bruegel senior fellow and Chief Asia-Pacific economist at Natixis.

“China needs to cool these tensions and the effort is genuine because the economy is not doing well. The Politburo has sent out a clear message that they need to do more stimulus,” Garcia-Herrero said. “They are worried. The last thing you want at this moment is to see your exports reduced and they are very much on a charm offensive again.”