The strange case of EU tariffs on Chinese EVs

Companies affected don't like them, but their impact could end up being positive.

- Vikram Khanna

What can be said of a policy of tariffs to protect an industry that does not want those tariffs? That is the bizarre fate that has befallen the European Union's carmakers, who, from July onwards, are supposed to be protected by duties against Chinese-made electric vehicles (EVs).

In another apparently puzzling development, the stock prices of most Chinese EV makers rose after the tariffs against them were announced on June 12.

How can we make sense of this?

First, the backstory: After nine months of investigations into China's subsidies to its manufacturers of EVs, the European Commission decided to impose tariffs of up to 38 per cent on them. The tariffs, the quantum of which varies from carmaker to carmaker, are provisional, and open to being revised later in the year after negotiations with the Chinese government, but until then, they will remain in place.

The proponents and defenders of the tariffs claim that they are needed to give EU carmakers breathing space to become more competitive vis-a-vis Chinese EV makers, whose models are at least 20 per cent cheaper. They cite the experience of the European solar industry which was decimated by Chinese competition. "We would be wise not to make the same mistake twice," said Mr Markus Ferber, a German member of the European Parliament. The tariffs are "not an act of protectionism," he added, "but rather a measure that levels the playing field."

There are also concerns that with Chinese EVs having been shut out of the US by the 100 per cent tariffs imposed by the Biden administration, China's carmakers will flood the EU market - the next biggest where, as of now, their share is only about 8 per cent.

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