Why have America and the EU put the brakes on Chinese electric vehicles? – OpEd – Eurasia Review

The electric vehicle (EV) market is poised for explosive growth, with China leading in terms of production and sales. However, this dominance has faced an obstacle in the form of heavy taxes imposed by the United States and the European Union (EU) on Chinese-made electric vehicles. This unexpected turn of events raises crucial questions: why are the US and EU taking such drastic measures and what are the potential consequences?

Unfair advantage: the subsidy argument

At the heart of the problem are accusations of unfair competition. The US and EU say Chinese electric vehicle makers benefit from substantial government subsidies. These grants can take various forms, including:

• Direct financial assistance: Chinese authorities are directly injecting cash into electric vehicle companies, reducing production costs and allowing them to offer more competitive prices in overseas markets.

• Subsidized raw materials: China heavily subsidizes the mining and processing of lithium and other critical battery components, further reducing production costs for Chinese electric vehicle makers.

• Support for research and development (R&D): Generous government funding for electric vehicle R&D allows Chinese companies to innovate quickly and potentially gain a technological advantage.

The U.S. and EU argue that these subsidies create an uneven playing field, undercutting prices for domestic electric vehicle industries that are struggling to gain a foothold. European Commission Executive Vice-President Margrethe Vestager said Chinese electric vehicles were “subsidized from mine to EU port”, giving them an unfair advantage. The United States echoed this sentiment, with President Biden citing the “threat of economic harm” to U.S. electric vehicle producers.

Protecting National Dreams: The Rise of National Champions

Beyond economic concerns, tariff wars have a strategic dimension. The United States and the European Union aim to develop their own electric vehicle sector and become global leaders in the clean transportation revolution. By protecting domestic companies from cheaper Chinese competition, they hope to create an environment conducive to growth and innovation. This ambition aligns with broader industrial policy objectives to create jobs, promote technological progress and ensure the future competitiveness of the electric vehicle sector.

The United States, for example, has ambitious plans to electrify its transportation sector and is investing heavily in building a strong domestic electric vehicle supply chain. The EU also presented its Green Deal strategy, aiming for carbon neutrality by 2050. A thriving domestic electric vehicle industry is essential to achieving these goals.

The Fallout: a tangled web of consequences

Imposing customs duties is a complex process with far-reaching consequences. Here’s a look at some key potential impacts:

• Higher prices for consumers: The tariffs will likely result in higher prices for consumers in the US and EU. This could dampen consumer enthusiasm for electric vehicles, hampering overall market growth.

• Disrupted supply chains: China is a dominant player in the electric vehicle battery supply chain. A full-scale trade war could disrupt electric vehicle supply chains, which often rely on components from different countries. This could lead to a slowdown in production and higher prices for consumers around the world. Ultimately, such a conflict could hamper the global transition to electric vehicles, a crucial technology for reducing greenhouse gas emissions.

• Escalation of tensions: The trade war could exacerbate existing political and economic tensions between the US, EU and China. This could lead to retaliatory tariffs and further strain global trade relations.

• Chill Innovation: A stifled market with limited competition could hamper innovation in the electric vehicle sector. Without the pressure to compete with cheaper Chinese alternatives, domestic electric vehicle companies may have less incentive to push the boundaries in terms of technology and profitability.

• A trade war on wheels? The imposition of high tariffs by the US and EU has sparked fears of a trade war focused on electric vehicles. Chinese retaliation is a real possibility. Beijing has threatened to retaliate by imposing countervailing tariffs on imports from the United States and the EU.. These could target a wide range of sectors, including agriculture, aviation and luxury goods. This tit-for-tat approach could exacerbate tensions and disrupt trade relations between these major economic powers.

The road ahead: cooperation or collision?

The future of the electric vehicle trade war remains uncertain. The United States and the EU have expressed their willingness to negotiate with China to resolve the subsidy issue. However, it will be difficult to find a mutually acceptable solution. China vehemently denies any wrongdoing and views the tariffs as protectionist measures.

There are other paths to follow. The US, EU and China could consider collaborative efforts to establish fair trade practices and establish global standards for subsidies for electric vehicle production. This would create a level playing field and promote healthy competition, ultimately benefiting consumers and accelerating the transition to clean transport.

Conclusion: a crossroads for the electric vehicle revolution

The decision by the US and EU to impose heavy taxes on Chinese electric vehicles marks a significant change in the global electric vehicle landscape. Although the stated goal is to protect domestic industries, this decision carries significant risks. The risk of rising prices, supply chain disruptions and a stifled innovation environment could ultimately hamper the very progress these measures aim to safeguard.

The coming months will be crucial in determining the trajectory of this trade war. Cooperation and commitment to fair business practices offer the best hope for a win-win scenario that benefits both consumers and the global electric vehicle revolution.