Stay informed with free updates
Simply register at Electric vehicles myFT Digest – Delivered straight to your inbox.
After Brussels’ preliminary tariffs on Chinese electric vehicles, both sides must make key decisions. The tariffs are due to be confirmed (or not) by EU governments in the autumn. China must decide whether and how to retaliate. These decisions will be interdependent: Beijing will undoubtedly attack capitals with tailored threats (French cognac is already in its sights) depending on the stance they adopt.
However, there is a bigger question: what role should China play in Europe’s decarbonization agenda? For Europeans, there is an urgent need to clarify how they link their twin decarbonization goals (in particular, phasing out new fossil fuel-powered cars in about a decade) and boosting their domestic green technology industry.
Is the goal for the approximately 10 million cars that Europeans buy each year to be carbon-free? and produced in Europe? Do all cars need to be carbon-free, but with a significant proportion coming from China? Or is the priority to ensure that the bulk of electric vehicles bought in Europe are made in Europe, even if that means missing the goal of all new cars soon being carbon-free?
Confusion about where Europe intends to go leads to confusion about the correct means to get there. What is clear is that Europe, rightly, does not want China to completely dominate the European electric vehicle market, as it has done with solar panels.
But if we take the commitment to electrify the automobile fleet seriously, and quickly, it is unrealistic to expect the national industry to fulfill it, given its slow progress so far. Still, only about 15 percent of new car purchases in Europe are pure electric vehicles, and about a quarter of them are made in China.
In reality, the choice is between the second and third options mentioned above, that is, between using Chinese imports as part of the solution and protecting the domestic industry even at the expense of delayed or aborted transportation decarbonization.
Unfortunately, the latter is the path the United States is taking. Its new 100 percent tariffs effectively exclude Chinese electric vehicles. By making cheaper electric vehicles unavailable, they undermine the Inflation Reduction Act’s ability to convince Americans that there will be a decarbonization revolution and thus jeopardize the adoption of cheaper electric vehicles. beyond those consumers who want and can afford a Tesla. Without expectations of a large domestic market, production capacity will not grow enough.
The EU has avoided this trap. Its tariffs are calibrated to offset actual subsidies and give China a justification not to retaliate, given that its automakers can still sell large volumes in Europe at a profit. But for that same reason, European politicians must decide what they think of a slightly smaller but still huge increase in imports.
The crux of the issue is whether a green industrial trade policy to balance domestic industry promotion with decarbonization goals works by making electric vehicles more or less expensive for end consumers. The current management does the first. But there is a way to do the latter.
Such an approach would explicitly tolerate significant Chinese imports, but would combine this with much more aggressive policies to ensure a reliable EV market for domestic producers.
Tariffs should be used only to offset unequal production subsidies, and the incoming carbon tariff should be quickly extended to cars (to eliminate the cost advantages of carbon-intensive energy). Meanwhile, tax, subsidy and procurement policies should give European producers confidence that they can sell increasing numbers of EVs at home.
It is essential to move tax incentives for corporate vehicles from conventional to electric ones. Germany could make a big difference by doing this, without burdening (or even saving) your budget. Subsidies should require low carbon footprints, effectively reserving access to European carmakers. The best would be to offer pan-European incentives or, failing that, an EU action requiring Member States to offer them.
In return, China should further boost its domestic adoption of electric vehicles through greater incentives for consumers. Halting the export pressure a little would make it politically easier for Europe to tolerate what would continue to arrive.
For this to be agreed, let alone maintained, more trust would be needed between Europe and China than currently exists. The reasons are China’s history of actively trying to replace European industries and its support for Vladimir Putin’s illegal invasion and crimes in Ukraine. Regaining friendship with Europe is largely in Beijing’s hands. But European leaders could do their part to communicate how attractive it could be.