The EU is expected to notify Beijing on Wednesday it intends to impose tariffs of up to 25% on imports of Chinese electric vehicles, triggering duties of more than €2bn (£1.7bn) a year and probably prompting a trade war with China.
The tariffs would be applied provisionally from next month in line with World Trade Organisation rules which would give China four weeks to challenge any evidence the EU provides justify the levies on imported EVs.
It is understood that EU research will show sales of Chinese electric cars have rocketed and those made in the country, including those for foreign brands such as Tesla, account for nearly 20% of all vehicles sold in the bloc.
The proposed tariff schedule is expected to be confirmed in Brussels on Wednesday afternoon after Chinese car companies have been formally notified of the plan in the morning.
The EU is fully expecting China to retaliate with counter duties slapped on everything from French cognac to dairy products. But insiders say the question of overcapacity of China’s car manufacturers is now becoming a domestic issue in many economies around the world.
In December last year the European Commission president, Ursula von der Leyen, tried to persuade China that access to the world’s largest open economy was conditional on a level playing field, arguing that China could not just dump the surplus of products in the bloc.
The EU charges non-EU car manufacturers a 10% levy on imports and tariffs. It is expected to increase duties on the four largest Chinese manufacturers to up to 25%, in addition to imposing two further tiers on other producers.
While the EU argues that Chinese manufacturers can easily absorb a further 15% levy, they are bracing themselves for a testing trade war with Beijing.
The assumption is that China’s president, Xi Jinping, will see it as a battle of strength which he must win as green tech is one of the few sectors in which the country’s economy is growing.
However, senior sources say that the question of EV dumping is also causing concern in non-EU member states and there is a determination to ensure that China cannot have global dominance in electric cars and other green tech products.
The subject is expected to come up at the G7 summit in Italy on Thursday with the EU hoping to persuade other leaders that the response to China’s overcapacity in cars, steel and other items including solar panels and electric vehicle batteries needs to be “targeted”.
Sources point to Joe Biden’s recent decision to slap 100% tariffs on Chinese EV imports and argue that all partners in the G7 should not take unilateral measures that would damage another partner in the group. Turkey has also announced tariffs on Chinese EVs of 40%.
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There are fears that the raising of tariffs in the US will have a knock-on effect in Europe, with China pivoting even more exports to the EU.
According to those familiar with the subject, there are also worries among G7 members that overcapacity of Chinese production could hit emerging economies such as Brazil, Mexico and India.
Leaders gathering at the G7 are expected to raise the topic of small Chinese banks funding deals with Russia amid concern this is bolstering the Kremlin’s war effort.
A spokesperson for the Chinese foreign ministry said on Wednesday that the prospect of tariffs was “protectionism”.
Lin Jian told a press briefing in Beijing that politicians and industry representatives from many European countries had expressed opposition to Brussels on the matter of tariffs, in what could be a reference to Germany, which is concerned about counter-measures on its own car exports to China.
“Protectionism has no future, and openness and cooperation are the right way, Lin said.
