Tariffs will shape Chinese EV-makers’ strategy

Significance

China has responded to the duties via retaliatory probes on EU imports, seeking leverage in negotiations that might settle the dispute. Otherwise, Chinese EV firms face a choice over whether to seek to defend their EU market share through lower profits, accepting losses or offshoring production.

Impacts

• The EU and China are headed for a period of escalating trade tensions and deteriorating bilateral relations.
• The Kiel Institute for the World Economy, a German think tank, has forecast that a 20% tariff would reduce Chinese EV imports by 25%.
• The Chinese government will likely threaten retaliatory tariffs on EU automotive agriculture, food and aviation imports.
• An upside risk could be China pursuing capacity cuts in EV manufacturing as it did for steel in the 2016-17 supply-side structural reform.
• Some China-based EV makers will increase their EU EV prices to offset the tariffs, increasing consumer costs.