Ever since the announcement of higher US tariffs on electric cars and other Chinese goods such as solar cells and semiconductors, it has been clear: the trade conflict between the USA and China is in full swing. US President Joe Biden is blocking Chinese manufacturers from importing their electric cars into the US with special tariffs of 100 percent. Or, to put it another way: it makes doing business with US customers de facto impossible for Chinese competitors.
One of the obvious questions now is: Can European manufacturers, especially German ones, benefit from this decision? The answer is: No, the risks far outweigh any potential benefits of selling more in the US in the future at the expense of Chinese carmakers. For Volkswagen, BMW and Mercedes, the situation is not getting better, but rather even more complicated – an escalating trade war between the two blocs could also hit them hard, especially if the European Union also gets involved.
:Biden is punishing China with extremely high tariffs
This smells like a trade war: The USA is making electric cars, solar cells and chips from China massively more expensive. For electric cars, import duties even rise to 100 percent.
A number of scenarios are currently being played out on the corporate floors of German car manufacturers, the most precarious of which is probably that the EU is taking US tariffs as a model and is now trying to enter into its own trade conflict with China with higher tariffs. The EU Commission is currently examining whether it should protect the European electric car market against cheaper imports from China with additional taxes. Brussels probably suspects, not wrongly, that Chinese electric vehicles are massively subsidized by the state and thus artificially made cheaper. Observers expect that the EU Commission will therefore announce an increase in import tariffs in the coming weeks – although nowhere near the amount that Biden has set.
This step is particularly demanded by France. The car companies there are particularly suffering from Chinese competition, but at the same time the Chinese market is not that important for them. Germany, however, views the EU Commission’s decision with great skepticism for fear of Chinese retaliation. During a visit to Sweden this week, Chancellor Olaf Scholz pointed out that half of all electric cars imported from China came from European brands. At the same time, European ones were selling Companies – unlike the American ones – produce many vehicles in China, said the Chancellor. Scholz therefore did not object when his Swedish colleague Ulf Kristersson called possible EU protective tariffs a “stupid idea”.
The Chancellor’s discomfort is understandable. Because it is primarily German companies that would be most affected by possible Chinese countermeasures in the event of EU protective tariffs. This is due to their dependence on the Chinese market, which has grown over the years and is far greater than that of their French competitors. VW currently does almost 35 percent of its business in China, and BMW’s share is also more than 30 percent. The balance sheets of the German auto industry without China are hard to imagine. German manufacturers, who have increasingly internationalized their business in recent years and decades, have no use for escalating trade conflicts between the USA and China or between China and the EU. They stand in the middle – and rely on their business to flow in both directions.
Tariffs like those now passed in the USA also affect the people of Munich
Just one example: They are the ones who still make a significant portion of their business from selling their luxury sedans. Almost half of the Mercedes S-Class and the BMW seven-series built in this country end up with wealthy Chinese customers. In addition, manufacturers like VW and BMW are now, if you will, Chinese manufacturers. The E variant of the BMW X3, which is also sold in Germany, is manufactured in Chinese factories. Tariffs like those now passed in the USA also affect the people of Munich.
The series could be continued: VW is also building the Cupra Tavascan for the European market together with a local Chinese joint venture partner. It is no coincidence that BMW boss Oliver Zipse warned at the annual general meeting about possible higher EU tariffs on Chinese car imports. “Protectionism sets a spiral in motion. Tariffs lead to new tariffs,” said Zipse. There is a great danger that China will respond with countermeasures, as the BMW boss sees it. The German auto industry says that the competitive conditions in China are already not easy. Local business could become even more difficult in the future. And there is another scenario that leaves the manufacturers no peace: They import a not insignificant part of their components from China, especially when it comes to rare raw materials and intermediate products. The entire German industry – from cars to wind turbine manufacturers to the chemical industry – is more or less on deliveries instructed from the Far East. The energy transition without material deliveries from China? Difficult to impossible.
But there are also those who say: Europe must now follow suit and protect itself from even more cheap imports from China. One of them is EU Commission President Ursula von der Leyen, who considers European industry’s dependence on China to be a geopolitical risk. She recently warned Chinese President Xi Jinping at a meeting in Paris that Europe would “defend” its markets against unfair trading practices. China critics argue that the country is already producing far more than is actually demanded.
This problem of so-called “overcapacity” – the existence of which Beijing flatly denies – is likely to gain a very special dynamic with the current tariff decision from Washington. This is when China increasingly diverts its car exports from the USA to Europe and floods the market here with cheap products. At the expense of European manufacturers.