Trade tensions between the EU and China have increased recently after new tariffs on Chinese imports were announced by Brussels. It has been suggested that, with China expected to impose retaliatory duties, this could see the start of a long-running dispute with many tit-for-tat measures.
So what developments have there been in recent weeks, and what are the chances that tensions spill over into a full trade war between two of the world's largest trading partners?
What measures has the EU implemented?
The dispute between the two sides escalated last week when Brussels announced a range of new tariffs on imports of Chinese electric vehicles (EVs). These are set to come into force from July 4th and were widely expected as the result of a long-running investigation into allegations of unlawful subsidies for the sector from Beijing.
The European Commission stated: “The provisional findings of the EU anti-subsidy investigation indicate that the entire BEV value chain benefits heavily from unfair subsidies in China, and that the influx of subsidized Chinese imports at artificially low prices therefore presents a threat of clearly foreseeable and imminent injury to EU industry.”
This has resulted in additional tariffs of up to 38 percent on imports of Chinese-made EVs, on top of an existing ten percent levy, which is expected to amount to duties of more than €2 billion a year.
Exact tariffs vary by manufacturer. The highest rate of 38 percent has been issued to SAIC, while Geely - which owns Volvo - will face charges of 20 per cent and BYD 17.4 percent. European and US carmakers with manufacturing facilities in China will also be affected. Tesla, for example, may receive an "individually calculated duty rate" due to a specific request it made.
However, moves against electric vehicles could only be the start. Politico notes that Brussels is currently undertaking 13 other investigations into Chinese goods, including steel pipes and food additives, so there could well be further tariffs or other trade barriers to come.
The responses from governments and industry
Brussels has stated that the tariffs are intended to protect the EU's own automotive sector from being undercut by cheaper Chinese competition. However, far from welcoming the tariffs, the EU car industry has broadly opposed the levies. Concerns were raised about the prospect of retaliatory measures that would harm exports to China, which is a major market for many European brands, and the prospect of the dispute escalating into a wider trade conflict.
CEO of BMW Oliver Zipse said, for example: “This decision for additional import duties is the wrong way to go ... Protectionism risks starting a spiral: tariffs lead to new tariffs, to isolation rather than cooperation.”
Similar sentiments were offered by VW, Stellantis and Mercedes-Benz, which all emphasized the need for open trade rather than tariffs.
Some governments also expressed concern over the decision. While the reaction from Beijing was naturally opposed to the move - with Foreign Ministry spokesperson Lin Jian calling it a "typical case of protectionism", there was also opposition from some European nations.
German transport minister Volker Wissing warned that punitive tariffs will have a negative impact on his country's firms, while economy minister Robert Habeck called for negotiations between the two sides.
Could a tit-for-tat trade war be looming?
Eyes have now turned to Beijing to see how the Chinese government reacts, and early signs suggest retaliatory measures could be on the way. This week, the Ministry of Commerce announced it is launching its own anti-dumping investigation into EU pork items. The bloc is the world's largest exporter of these products, with China among the largest destinations.
The move has been denounced by farmers' association COPA-COCEGA, which denied engaging in uncompetitive practices. It added: “We find ourselves once again in the crossfire of the trade disputes concerning other sectors.”
A range of other sectors may also be under the spotlight if the dispute continues to escalate. Beijing is already investigating spirits such as French brandy, while aviation components and luxury goods may also be considered for additional tariffs, as well as additional levies on the automotive sector.
One recent research paper from analysts Rhodium Group said: “Beijing is likely to use both carrots and sticks to build opposition to the Commission’s case, in the hopes that a sufficiently large group of (EU) member states … emerges in order to block permanent duties."
However, it remains to be seen how strongly China wishes to respond. One diplomat suggested to Politico that much may depend on the outcome of November's US election, as a second term for Donald Trump would be likely to upend traditional trade alliances and see European businesses increase pressure on the EU to adopt a more friendly tone towards Beijing.
