October 4 marked a pivotal moment in Europe’s trade policy as the European Commission narrowly avoided a significant setback in its plan to impose countervailing duties on electric vehicles (EVs) imported from China. The duties, aimed at countering what the EU sees as unfair subsidies to Chinese EV manufacturers, survived a crucial vote in the Council of the European Union despite opposition from key member states.
Five EU member states voted against the imposition of tariffs on Chinese EVs. Among them was Germany, a country that had previously abstained from a vote on the matter. Germany’s opposition carried particular weight given its status as the EU’s largest economy and a major stakeholder in the automotive industry. Alongside Germany, Spain was expected to join the opposition after Prime Minister Pedro Sanchez, during a visit to Shanghai in September, called for reconsidering the tariffs. However, Spain ultimately abstained, likely recognizing there was insufficient support to block the measure.
The EU’s plan aims to impose duties on Chinese EVs to protect European manufacturers from unfair competition. According to the European Commission, Chinese manufacturers benefit from state subsidies that allow them to sell vehicles at lower prices, creating an uneven playing field. The duties, however, have proven divisive, with some countries and automakers concerned about the potential impact on the broader economic relationship with China.
China has responded to the EU’s tariff plan with significant diplomatic pressure, urging key EU member states to oppose the measure. The Chinese government has also launched its own anti-subsidy and anti-dumping investigations into European products, including cognac, pork, and dairy, in a clear tit-for-tat response. This signals a more aggressive posture from China compared to its relatively restrained reaction to similar tariffs imposed by the United States and Canada, which have included 100% duties on Chinese EVs.
Furthermore, China has threatened to reduce foreign direct investment (FDI) in the EU’s EV manufacturing sector. This threat carries weight, as Chinese investment has become crucial for the development of Europe’s EV infrastructure. With China also initiating an anti-dumping investigation into Canadian rapeseed, it’s evident that Beijing is not shying away from economic retaliation to protect its burgeoning EV industry.
What distinguishes China’s response to the EU from its reaction to North American tariffs is the significant leverage it holds over European economies. China has become a key player in the global EV market, and Europe is a major destination for its exports. In fact, 55% of Chinese EV exports go to the EU, highlighting the strong trade ties between the two regions.
China’s leverage is based on two critical weaknesses in Europe. First, the EU has struggled to present a unified front on trade issues, even though trade policy is one of the most centralized areas of EU governance. Diverging national interests, as seen in the October 4 vote, complicate efforts to formulate a coherent and assertive trade policy. Second, Europe’s dependence on China—particularly for imports of critical components necessary for its digital and energy transitions—gives Beijing significant economic influence.
Despite efforts to “de-risk” its economic relationship with China, the EU’s dependence has grown rather than diminished. In contrast, the United States has successfully managed to reduce its reliance on Chinese goods, a divergence that could shape future geopolitical dynamics.
One of the most striking aspects of the October 4 vote was Germany’s decision to oppose the tariffs. Germany’s automotive sector has invested heavily in China, and many of its automakers now produce EVs in Chinese factories. These vehicles are subsequently exported to Europe, which means that German companies could be directly affected by the new duties.
This situation puts Germany in a delicate position. On the one hand, the German government has traditionally been a staunch defender of the EU’s single market, advocating for rules that promote fair competition and economic integration. On the other hand, Germany’s powerful automotive lobby is keen to protect its investments in China, even if that means opposing measures designed to level the playing field for European manufacturers.
The fact that Europe’s largest economy chose to prioritize the interests of its automakers over broader market principles underscores the extent to which major European companies are influencing EU trade policy. It also highlights the growing urgency of reducing Europe’s economic dependence on China if the EU wishes to maintain control over its trade and industrial strategy.
The EU has recognized the risks posed by its deepening economic ties with China and has developed a plan to “de-risk” its relationship. This involves managing the risks associated with economic and technological dependence, especially in sectors critical to Europe’s energy transition and digital transformation. However, the de-risking strategy has yet to yield significant results, as European dependence on Chinese imports continues to grow.
De-risking, if successful, will come at a cost. Reducing reliance on Chinese imports and technology could drive up production costs and slow the development of critical industries, such as EV manufacturing. However, inaction could prove even more costly in the long run, as Europe risks losing its economic independence and becoming more vulnerable to Chinese pressure.
To reduce the costs of de-risking, the EU needs to shift from a defensive posture—focused on tariffs and trade barriers—to a more proactive strategy aimed at boosting its own competitiveness. This will require significant investment in industrial policy and innovation, areas where the EU currently lags behind both the US and China.
One of the key factors driving China’s dominance in the EV sector is its massive economies of scale. The cost of producing an EV in China is significantly lower than in Europe, even without accounting for subsidies. This is partly due to China’s impressive technological advancements, as well as its ability to produce vehicles on a much larger scale than its European counterparts.
While many analysts focus on China’s subsidies as the main barrier to European competitiveness, the real issue may lie in the EU’s inability to match China’s scale and innovation. Much of the technology embedded in Chinese green tech originated in Europe or the United States but failed to gain government support while it was still unprofitable. Now, China has mastered these technologies and is producing them more efficiently and at lower costs.
The United States, through initiatives like the CHIPS and Science Act and the Inflation Reduction Act, is trying to change this dynamic by providing massive subsidies and support to its tech and green industries. Whether these policies will succeed remains to be seen, but the US is clearly ahead of the EU in developing a coherent industrial policy aimed at fostering innovation and scaling up production.
The EU, by contrast, is still struggling to develop a credible industrial policy. The absence of a strong capital market capable of financing large-scale innovation projects is a major obstacle. Without significant investment in research, development, and production, Europe risks falling further behind in the global race for green tech leadership.
In addition to building up its own industrial capabilities, the EU must strengthen partnerships with other major economies. This includes not only traditional allies like the United States but also emerging markets in the Global South. These partnerships will be critical in securing alternative markets and sources of raw materials, reducing Europe’s vulnerability to Chinese retaliation.
One key area where the EU can improve is in coordinating economic security measures with like-minded economies, particularly the G7. By working together to develop common standards and policies, the EU and its partners can present a united front against unfair trade practices and mitigate the risks of economic coercion.
The European Commission’s decision to impose duties on Chinese EVs marks a turning point in EU-China relations. For years, the relationship between the two regions was governed primarily by engagement and cooperation, with China serving as both a major market and supplier for European industries. However, the dynamics have shifted, and the two economies are now in direct competition, particularly in the green tech sector.
As the EU moves to protect its industries from what it perceives as unfair Chinese competition, it will need to balance the need for defensive measures with a broader strategy for enhancing its own competitiveness. At the same time, the EU must navigate the complex geopolitical landscape, where China’s influence continues to grow, and Europe’s dependence on Chinese goods remains significant.
The challenge for Europe is clear: how to reduce its reliance on China while maintaining access to the world’s largest EV market. The outcome of this struggle will have far-reaching implications, not just for the automotive industry but for the future of Europe’s economic sovereignty and global standing.
