EU under pressure after US levies tariffs on Chinese goods

New US tariffs on Chinese goods are set to redirect shipments to Europe and put increased pressure on Brussels, which is scrambling to avoid being caught in the trade war between Washington and Beijing.

President Joe Biden on Tuesday slapped tariffs of 100 per cent on Chinese electric vehicles and tripled the rate on steel and aluminium. He increased tariffs on solar cells to 50 per cent and said the rate on semiconductors would be doubled from 2025.  

“The US has sent a very clear message that it wants minimum Chinese participation in its green transition,” said Yanmei Xie, a geopolitics analyst at Gavekal Research. “The EU being the remaining large developed market with green ambitions and generous subsidies will be a must-have market for Chinese exporters of clean-energy products.”

The US move came as the European Commission is struggling to protect domestic green technology industries from cheap Chinese competitors, with EU officials stressing that Brussels lacks the powers to compete with Washington and Beijing in a global trade war.

They predicted that the US measures would likely increase an already uncomfortably large European trade deficit with China — €290bn in 2023, and that Brussels was actively looking to deploy its available “powers” to address that imbalance.

“The EU cannot stay idle since it will be the key target for Chinese products. This means more pressure to impose countervailing duties,” said Alicia García-Herrero, the chief economist for Asia-Pacific at French investment bank Natixis.

She said Chinese President Xi Jinping appeared to ignore requests by EU leaders to address overcapacities during a trip to Europe this month. 

“The EU cannot do much but lift tariffs. I think we are heading for a trade war.”

A senior EU official said Brussels was attempting to co-ordinate with western allies such as the US to avoid “taking different action” on Chinese overproduction and the “flooding” of products on the single market “which is really problematic for us”.

But the EU is hamstrung by an insistence that all its trade measures are WTO compliant, another official said, adding that breaching those rules would create a far worse situation that would negatively affect all sides.

Xie played down the impact of WTO-compliant trade protections the EU is able to roll out, saying that they will be “no match to Chinese manufacturers’ proven ability to scale up, cut cost, and devise workarounds”.

Investigators for the commission must painstakingly gather evidence that could survive a legal challenge, and tariffs can only be set at levels commensurate with the distortion.

Analysts expect such tariffs to reach 25 per cent when a probe into subsidies for Chinese EVs finishes within weeks, far below the US level of 100 per cent. 

Rhodium Group, a US consultancy, has calculated that such a level would still leave EU sales more profitable for Chinese companies than domestic ones, and therefore have little impact. 

The bloc remains split on taking more muscular action against Chinese companies, also for fear of possible retaliation against European businesses.

Chancellor Olaf Scholz warned against tariffs on Chinese cars this week — given the exposure of many German carmakers to Beijing’s retaliation. Scholz was joined by Sweden’s premier Ulf Kristersson, whose national carmaker Volvo is owned by China’s Geely.

Still, the EU has recently taken more aggressive steps against Chinese companies, with commission officials last month raiding Nuctech, a maker of scanning equipment, in an anti-subsidy probe.

Brussels has also used newly acquired powers to force Chinese bidders to pull out of solar park and train contracts and to warn Beijing of restricting its access to the EU’s medical device market unless it opened up to EU manufacturers.    

One official pointed out that the US imported far fewer Chinese EVs than Europe.

A commission spokesperson said Brussels shared the “US concerns on overcapacity and unfair trading practices . . . and is addressing them via its own instruments and in line with WTO rules.”

EU policymakers are also concerned about the precedent the US measures set for a potential return to the White House by Donald Trump, who imposed 25 per cent tariffs on steel and 10 per cent on aluminium imports from the EU, and has signalled that he would expand such measures if he wins the election in November.

“Biden has just handed a blueprint to Trump and given him the all clear,” said one EU diplomat in response to the measures. “If [Trump] wins in November, we can expect similar treatment.”