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Trade Tariffs: Difference between revisions
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On October 4, 2023, the European Commission launched an anti-subsidy investigation into imports of passenger battery electric vehicles (BEVs) made in China. <ref>https://rhg.com/research/opening-salvo-the-eus-electric-vehicle-probe-and-what-comes-next/</ref> There are three main concerns informing the EU’s decision to open an investigation into imports of China-made BEVs: substantial Chinese state support to its electric vehicle industry, a rapid increase in cheap exports to Europe, and mounting over-capacity in China that could accelerate those exports. | On October 4, 2023, the European Commission launched an anti-subsidy investigation into imports of passenger battery electric vehicles (BEVs) made in China. <ref>https://rhg.com/research/opening-salvo-the-eus-electric-vehicle-probe-and-what-comes-next/</ref> There are three main concerns informing the EU’s decision to open an investigation into imports of China-made BEVs: substantial Chinese state support to its electric vehicle industry, a rapid increase in cheap exports to Europe, and mounting over-capacity in China that could accelerate those exports. | ||
Trade data shows that China’s BEV exports have grown at lightning speed over the past three years (Figure 2). China’s share of global BEV exports grew from just 4% in 2020 to 21% in 2022, and China’s share of EU BEV demand grew from 4% to 16%. The Commission argues that rapidly rising Chinese exports of lower-priced BEVs (about 20% below European unit prices), and the sharp rise in China-based production capacity constitute an imminent threat to Europe’s auto industry. | Trade data shows that China’s BEV exports have grown at lightning speed over the past three years (Figure 2)'''. China’s share of global BEV exports grew from just 4% in 2020 to 21% in 2022, and China’s share of EU BEV demand grew from 4% to 16%'''. The Commission argues that rapidly rising Chinese exports of lower-priced BEVs (about 20% below European unit prices), and the sharp rise in China-based production capacity constitute an imminent threat to Europe’s auto industry. | ||
In order to impose countervailing duties without running the risk of a major rebuke from national European courts (a more immediate threat than a WTO counter-case, which can take years), the Commission will need to prove three things: 1) that exporters of China-made cars received countervailable subsidies from the Chinese government, 2) that Europe’s industry is under imminent threat of injury, and 3) that there is a causal link between the two. | In order to impose countervailing duties without running the risk of a major rebuke from national European courts (a more immediate threat than a WTO counter-case, which can take years), '''the Commission will need to prove three things: 1) that exporters of China-made cars received countervailable subsidies from the Chinese government, 2) that Europe’s industry is under imminent threat of injury, and 3) that there is a causal link between the two.''' | ||
An early decision to impose duties might win favor in France, but it would likely rile other member states, chief among them Germany. Berlin has sent mixed signals about the probe, reflecting divisions within the coalition government. But there is significant concern in Germany that EU duties would trigger retaliation against its carmakers, which are deeply dependent on the Chinese market. France, on the other hand, has strongly supported the investigation, which it views as an opportunity to bring manufacturing jobs back and increase Europe’s resilience in green technologies. | An early decision to impose duties might win favor in France, but it would likely rile other member states, chief among them Germany. Berlin has sent mixed signals about the probe, reflecting divisions within the coalition government. But there is significant concern in Germany that EU duties would trigger retaliation against its carmakers, which are deeply dependent on the Chinese market. France, on the other hand, has strongly supported the investigation, which it views as an opportunity to bring manufacturing jobs back and increase Europe’s resilience in green technologies. | ||
<u>The case of lithium-ion batteries</u> | |||
The battery sector has been a major recipient of Chinese state support over the past decade, resulting in rapidly falling prices and substantial overcapacity. In 2022, China’s production of lithium-ion batteries was 1.9 times the cumulative installed volume. Despite this, China’s support to the sector is still growing, with direct support mechanisms such as grants on the rise—even as those to BEV makers have come to plateau | The battery sector has been a major recipient of Chinese state support over the past decade, resulting in rapidly falling prices and substantial overcapacity. In 2022, China’s production of lithium-ion batteries was 1.9 times the cumulative installed volume. Despite this, China’s support to the sector is still growing, with direct support mechanisms such as grants on the rise—even as those to BEV makers have come to plateau | ||
However, there are two important differences between batteries and the other green tech sectors mentioned above, and these have implications for how the EU might respond. First, China’s dominance in the sector means that a trade investigation and resulting duties on China-made batteries could create major short-term inflationary pressures on downstream European industries, as alternative sources of supply are limited and more expensive. China today accounts for nearly half of global battery cell production, in addition to dominating the global market for processed battery components such as anodes, cathodes, electrolytes, and separators. | '''However, there are two important differences between batteries and the other green tech sectors mentioned above, and these have implications for how the EU might respond. First, China’s dominance in the sector means that a trade investigation and resulting duties on China-made batteries could create major short-term inflationary pressures on downstream European industries''', as alternative sources of supply are limited and more expensive. China today accounts for nearly half of global battery cell production, in addition to dominating the global market for processed battery components such as anodes, cathodes, electrolytes, and separators. | ||
Second, Chinese battery makers have invested heavily in Europe, contributing to local economic activity and leading to an on-shoring of battery | '''Second, Chinese battery makers have invested heavily in Europe, contributing to local economic activity and leading to an on-shoring of battery capacity'''—a form of de-risking, even if plants are Chinese-owned. It seems unlikely that the EU will take action against Chinese battery makers in the short- to medium-term, including through its new foreign subsidies instrument, which allows the EU to target subsidized production in Europe. | ||
Poland, Hungary, and the Czech Republic’s combined market share reached 36% of EU battery demand in 2021, up from 7% in 2017, and largely driven by investment from South Korean companies Samsung, SK Innovation, and LG Energy. But that share has stagnated over the past two years, while the share of Chinese batteries in EU imports jumped to 46% in 2022, from 31% in 2021. This was largely due to price differences: in 2022, Chinese batteries were 33% cheaper than those produced in Europe. | Poland, Hungary, and the Czech Republic’s combined market share reached 36% of EU battery demand in 2021, up from 7% in 2017, and largely driven by investment from South Korean companies Samsung, SK Innovation, and LG Energy. But that share has stagnated over the past two years, while the '''share of Chinese batteries in EU imports jumped to 46% in 2022, from 31% in 2021'''. This was largely due to price differences: in 2022, Chinese batteries were 33% cheaper than those produced in Europe. | ||
=== <big>China</big> === | === <big>China</big> === | ||
== References == | == References == | ||