With billions of dollars of trade at stake, China and the European Union have agreed to begin negotiations to try to resolve a growing dispute over tariffs.
Chinese Commerce Minister Wang Wentao and Valdis Dombrovskis, European Union Trade Commissioner, will hold discussions on the European Union’s plan for tariffs on electric cars from China, it was announced on Saturday evening the Chinese Ministry of Commerce.
Hours earlier, Robert Habeck, Germany’s vice chancellor and economy minister, said the European Union was ready to hold consultations and expressed hope that tariffs could be avoided.
This month, the European Commission, the executive body of the European Union, proposed tariffs of up to 38% on electric cars from China, on top of existing tariffs of 10%. on imported cars. The commission said it found that China’s electric car sector was heavily subsidized by the government and state-controlled banking system. Chinese exports of electric vehicles pose a growing challenge to European automakers.
Mr. Habeck, speaking in Shanghai after meetings in Beijing, defended the tariffs. “These tariffs are not punitive,” he said, adding that they are intended to compensate for subsidies that violate World Trade Organization rules.
It’s unclear what a potential trade deal might look like. Executives at Volkswagen and other European automakers have called on Chinese automakers to build cars in Europe with European workers earning European wages, instead of importing cars from China.
But Chinese automakers have already built dozens of electric car factories in China thanks to what the European Union describes as large subsidies, and continue to build more.
Before agreeing to negotiations on Saturday evening, Mr. Wang, the Chinese Minister of Commerce, who had met Mr. Habeck, accused the European Union of violating WTO rules.
The National Development and Reform Commission, China’s top economic planning agency, said in a statement that “China will take all measures to safeguard the legitimate rights and interests of Chinese enterprises.” He added that the tariffs were inconsistent with international efforts to combat climate change.
Customs tariffs would put Germany in a delicate position. German automakers have numerous operations in China and fear being harmed by Beijing’s trade retaliation measures.
On Saturday in Beijing, Mr. Habeck visited several Chinese economic ministries but did not meet with Premier Li Qiang, China’s second-ranking official. Mr. Habeck then traveled to Shanghai to hold a news conference, but declined to comment on why he had not met with Mr. Li, who in some ways is his counterpart.
Mr Habeck criticized China for supplying Russia with goods with both civil and military applications for its war against Ukraine. China’s trade with Russia increased by more than 40% last year, and half of that increase was linked to these dual-use goods, he said.
“These are technical assets that can be used on the battlefield, and this must stop,” he said.
But the main topic of Mr. Habeck’s trip was the trade conflict. He was due to meet with German business leaders in Shanghai on Sunday, then travel to Hangzhou, a neighboring technology hub.
World Trade Organization rules allow the imposition of tariffs intended to offset the effects of subsidies. For its part, China denies inappropriately subsidizing its electric vehicle makers and says its leading role in the global industry is the result of efficient manufacturing and innovation.
Anticipating these tariffs, China’s Commerce Ministry in January took the first steps to impose tariffs on imports of Cognac and other wine-based spirits, produced mainly by France, one of the countries behind demands for customs duties on Chinese electric cars. On Monday, China’s Commerce Ministry threatened to impose tariffs on pork imports from Europe.
And state-controlled media in China reported last week that China’s auto industry was asking the Commerce Ministry to impose tariffs on imports of gasoline-powered cars from Europe, a move that would affect mainly German car manufacturers.
Mr. Wang, the trade minister, called on Germany to help end European Union tariffs. “We hope that Germany will play an active role within the EU and encourage the EU and China to move closer to each other,” the ministry said in a statement on Saturday.
China, the world’s largest auto market, has almost halved its imports of German cars over the past five years as its domestic automakers have become increasingly competitive. Chinese automakers dominate global production of electric and gasoline-electric hybrid vehicles, which now nearly match sales of gasoline-powered cars in China.
But many of China’s wealthiest customers still covet German brands. Mercedes sells more of its most luxurious cars, the German-made Maybachs, in China than in the rest of the world combined.
German automakers also have joint ventures with Chinese companies to assemble cars in China. Volkswagen is making significant new investments in manufacturing and engineering in China, while starting to reduce its workforce in Germany.
Germany is playing a crucial role in China’s efforts to prevent new EU tariffs from being finalized this fall. This was also the case the last time China and Europe engaged in a major trade dispute.
In 2013, under pressure from China, Germany rallied European governments to cancel tariffs proposed by the European Commission on solar panels from China. Chinese solar panel manufacturers quickly overwhelmed Europe and the European industry collapsed.
European leaders pushing to impose tariffs on Chinese electric vehicles say Europe’s auto industry now faces an equally serious threat.
To block the tariffs, Beijing would have to persuade a majority of European Union countries, representing at least 65 percent of the bloc’s population, to reverse the European Commission’s decision.
In its response to European tariffs, China should target key countries, analysts say.
Possible tariffs on gasoline cars would hit Germany, the bloc’s most populous country, with 19 percent of the union’s population. Italy is the third most populous country and also exports gasoline-powered luxury vehicles – Ferrari and Lamborghini sports cars – to China.
France is the second most populous country in Europe and China’s potential tariffs on Cognac target one of its national symbols.
Spain, the fourth most populous country in Europe, is the leading European exporter of pork to China, a product that Beijing has also threatened to penalize.
Beijing allowed German automakers, led by Volkswagen, to open car factories with Chinese manufacturers in the 1980s, circumventing China’s 100% tariffs on imported cars. China reduced tariffs on imported cars to 25% in the years after joining the World Trade Organization in 2001, and in 2018 it further reduced tariffs on most cars imported at 15% in an effort to ease trade tensions with the United States under the Trump administration. .
In addition to the 15 percent tariff, China also collects a 10 percent tax from buyers of gasoline cars. Cars and sport utility vehicles with very large gasoline engines, which are mainly imported, pay an additional tax of 40 percent.
Read you And John Liu contributed to the research.