“I think you can actually imagine this happening with BYD,” says Ilaria Mazzocco, a senior research fellow at the Center for Strategic and International Studies. “And they will also have less competition from other Chinese automakers.” BYD is known for its ability control production costsso it can continue to sell its cars at a relatively low price. However, for other Chinese brands, tariffs may mean they will now have to set higher prices and compete directly with models from Europe.
It is not only Chinese car manufacturers who feel the effects of this situation. Tesla, half of whose cars are manufactured at its giant factory in Shanghai, China, will receive the lowest tariff rate of 7.8 percent after the company requested an adjustment based on the actual subsidies it receives in China. For comparison, Volkswagen and other European brands producing cars in China can get about 21 percent.
One way for Chinese brands to bypass tariffs is to set up factories in Europe and move production here, just as Volvo has done for years with production in Sweden, even though it was taken over by the Chinese company Geely.
Such decisions may be welcomed by some European countries as it would theoretically contribute significantly to local employment and green economic growth. Indeed, many Chinese companies have announced plans to move parts of their supply chain to countries such as Spain, Hungary and Poland, although Mazzocco cautions that these announcements should be taken with a pinch of salt until factories actually start production.
Alternative solutions
However, despite the vote result, the approved tariffs may not be final. On Monday, a European Commission official said the commission was willing to continue negotiations with China even after the vote on tariffs. If they can agree on other solutions to unfair competition – such as setting import quotas or a minimum price for Chinese electric vehicles – the tariff could be revised.
China yes filed a complaint to the World Trade Organization on EU customs duties, and the WTO could also ask the EU to amend or withdraw those duties if it considers them unacceptable.
“What the commission really wants to say to members is: ‘Listen, we have to look serious here. We can negotiate later,” says Alicia García-Herrero, chief economist for the Asia-Pacific region at the French investment bank Natixis. If member states rejected the rates proposed by the Commission, it would show that Europe is divided and powerless in the face of the influx of Chinese brands. But now that tariffs have been removed, Europe has more influence in negotiating a better trade deal with China.
Not all alternative solutions would have the same impact on Chinese companies. For example, the worst situation could be an import quota, García-Herrero says. Making a profit with tariffs is difficult, but still possible. “But quotas would reduce export volumes, so it is not in China’s interest,” he says.
On the other hand, setting a floor price for imported electric vehicles themselves may not be a bad thing at all. It gives automakers a higher profit margin and forces them to compete on the basis of better quality and service. “I think Chinese automakers are pretty confident in their quality,” Mazzocco says. This could even be good news for Chinese electric car brands that focus on the high-end luxury car market, such as BYD’s sub-brand Yangwang, which makes luxury SUVs that can drive across lakes in emergencies.