China hints at 25% car tariffs as deadline for EU probe looms

BEIJING - China signalled it is ready to unleash tariffs as high as 25 per cent on imported cars with large engines, as trade tensions escalate with the United States and European Union.

The China Chamber of Commerce to the EU said it was informed about the potential move by “insiders”, according to a statement posted on social media platform X. The levies would affect European and US carmakers and have a “significant” impact on relations with the EU, it added.

Beijing is ramping up threats of retaliation as a deadline looms for the EU to announce results of its probe into China’s electric vehicle (EV) subsidies. The bloc must inform Chinese exporters whether it intends to impose tariffs by early June, and they could go into effect a month later, according to Eurasia Group.

Trade tensions between the EU and China have soared since the EV probe was announced, with President Xi Jinping’s visit to Europe in May seemingly doing little to relieve the strain. Mr Xi was seeking to dissuade the bloc from going down the same path as the US, which has unveiled a sweeping set of charges on imports from China, raising concerns in Beijing that America’s allies may follow suit.

“China’s retaliatory trade investigations and warnings are not deterring the EU,” Eurasia Group analysts wrote in a note on May 21. “Brussels is eager to send a strong signal to Beijing with its EV probe that the EU will counteract Chinese subsidies and overcapacity.”

The Chinese chamber referred to an interview published by the ruling Communist Party of China’s Global Times newspaper on May 21 in which Mr Liu Bin, chief expert at the China Automotive Technology and Research Centre, called for temporarily increasing the tariff rate on cars with engines larger than 2.5 litres.

China imported 250,000 cars in that bracket in 2023 and World Trade Organisation rules would permit a tariff of up to 25 per cent, the report cited Mr Liu as saying. The current charge on passenger car imports from Europe is 15 per cent, according to the Ministry of Commerce’s tariff search page.

The carmakers most impacted would be Toyota Motor, Mercedes-Benz Group and BMW, said Mr Daniel Kollar, head of consultancy Intralink’s automotive and mobility practice.

Japanese cars such as Toyota’s Lexus brand would be affected only if China imposed tariffs on imports from all nations, instead of targeting shipments from the US or EU.

In addition to the jab at the car trade, China has recently hinted it could impose tit-for-tat levies on European wine and dairy products, and has begun an investigation into European exports of brandy.

Amid global concern about China’s surging exports, the EV industry is drawing especially close attention. China produces more electric cars than anywhere else, as well as controls a majority of the battery supply chain. With a price war and slowing economy at home, its automakers are seeking to expand overseas. They exported 1.55 million EVs in 2023, about 40 per cent of them to Europe.

The Biden administration earlier in May announced 100 per cent tariffs on Chinese electric cars, while the EU is investigating Beijing’s subsidies across a range of industries, which has prompted Chinese firms to pull out of rail and energy tenders.

Mr Liu said in the Global Times interview: “Certain countries and regions have taken restrictive measures in the new-energy vehicle sector, which run counter to the green development concept. Such measures will only hurt the interests of their own consumers.” BLOOMBERG