Should EU follow US in imposing higher tariff on Chinese cars?

The rise and spread of China-made cars across major markets of the world has sent shockwaves in various countries with local automakers as well as politician looking at ways of beating back against the increasing dominance. Chinese car options in markets such as the US and European Union (EU) tend to be cheaper than comparable local alternatives and are now also offering robust build quality and a plethora of features. Competing with Chinese brands is getting tougher and so, there are calls for higher tariffs on vehicles imported.

The latest to join the chorus for a higher tariff on cars imported from China is Italian Industry Minister Adolfo Urso who recently said that the country's automotive industry needs to be protected from an influx of Chinese goods. He pointed to the recent US decision to impose a higher levy on a variety of Chinese goods imported, including cars.

Urso is of the opinion that a higher tax on imported Chinese cars is crucial to help Italian and other European automakers. "Much higher tariffs against Chinese products are inevitable if we do not want the European industry to be wiped out," he said, as per Reuters. He also called for a stronger industrial policy from EU as a bloc, adding that steeper tariff in the US may mean Chinese auto companies begin diverting units meant for the US to Europe.

Tale of tariffs in the fast lane

China is the world's largest automotive market as well as the largest car manufacturer. Its dominance in the sphere of electric vehicles (EVs) in particular, has seen rival brands struggle to keep up. Companies such as Nio and Xpeng are taking big strides in markets outside of the US while BYD is already giving Tesla a run for its money. In fact, Nio recently opened a showroom in Amsterdam and its founder - William Li - explained why EVs should not be used as a political target. “Electric vehicles are very important for positive development of the environment, they should never be used as a political target," he told reporters.

Chinese companies are often seen as benefiting from subsidies from the country's government which helps them keep costs down and then sell in foreign markets at prices that may be lower than prices of comparable local (American or European) models.

But even as the Joe Biden administration has imposed higher tariff on China-made car models, Beijing has hit back hard. Officials here have termed the US move as 'unfair trade practice' and even accused Washington of ‘protectionism.’

There are also reports that China is considering imposing higher tax on non-Chinese car models, a move that could severely impact performance of manufacturers like BMW, Audi and BMW here.

Not all on board the tariff ship

The call for higher tariff on Chinese goods is finding momentum but not from all quarters. Arno Antlitz, Chief Financial Officer at Volkswagen AG, fears greater retaliation from China and instead, insists focus for European carmakers ought to be on bringing down costs. "We have to use the next two to three years to become even more competitive on the cost side," he wrote in a post on LinkedIn. "It is very questionable whether the current tariff discussion leads into the right direction."

Ferrari NV CEO Benedetto Vigna also has a more positive approach in the face of grounds being gained by Chinese brands. “For me, this is a call to action for Europe. It’s a nice competition," he said, adding that the Chinese market itself was still not mature enough for a brand like Ferrari.

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