While the Trump administration’s tariffs and Beijing’s reactions to them have occupied the headlines, China has also had to react to European restraints on its trade.
Some months ago, the European Union placed high tariffs on Chinese-made electric vehicles (EVs), claiming that they had an unfair trade edge because China subsidizes their production. In just the past few weeks, Beijing has responded. It has made the usual complaints and threats, but Beijing has shown much more restraint than it might have in the past. It should, for China’s rather fragile domestic economy, offer a weak base from which to pursue an active trade war with the Americans, the Japanese, and now the Europeans.
EU administrators began their action late last year. Europe’s domestic automakers complained of a flood of inexpensive China-made EVs flowing into the continent. Officials in Brussels investigated and determined that this flood of EV imports was not only eclipsing sales of domestically made products but also stymieing the development of a European EV capability.
Under the authority of what the EU calls the “foreign subsidy regulation,” Brussels determined that Beijing was indeed subsidizing EV production. In response, the EU raised the duty on these cars from 3.5 percent to almost 30 percent. At about this time, Brussels also began probes into Chinese trains, solar panels, and security equipment, implicitly threatening—although not imposing—tariffs on these products.
Chinese EV makers have filed cases in Europe contesting the tariffs, while Beijing issued an official response and launched probes of its own on European products entering China, among them brandy, pork, and luxury vehicles. It has imposed what it refers to as a temporary tariff on brandy imports.
The Chinese Commerce Ministry recently released a 20-page document summarizing its findings. It highlighted the burden European investigators placed on the Chinese companies involved, including extensive demands for information and surprise inspections. It noted that several Chinese firms had to withdraw from projects for which they had contracted, suffering losses of some 15.6 billion yuan (about $2.1 billion). The ministry complained that the Europeans in their accusations failed to adequately define “foreign subsidies” or “market distortion.” The Europeans have responded by touting the integrity of their laws and how circumstances necessitated requests for information and inspections.
Despite the grumpy tone of the Commerce Ministry’s report, Beijing has so far kept its response notably muted. The past might have seen bold threats of retaliation and the filing of cases at the World Trade Organization and other international bodies. But none of this has happened—at least not yet. While Beijing has complained, tariffs on European brandy hardly constitute a proportionate response to EU tariffs on Chinese EVs coming into its 27 member countries.
China showed a similar moderation to the rounds of tariff increases imposed by the United States on a wide range of Chinese products. Beijing has levied 10 percent to 15 percent tariffs on American coal, liquified natural gas, crude oil, pickup trucks, agricultural machinery, some agricultural products, and large-engine vehicles, but this was small beer affecting only some $35 billion of U.S. exports, while the U.S. tariffs affected the equivalent of some $525 billion of Chinese exports.
Given the current situation, it’s likely that Beijing will take a more cautious approach. If the United States has proceeded most aggressively, Chinese authorities know that aggressive tactics on their part could easily bring more hostility from the rest of the developed world. The Chinese Communist Party (CCP) is also aware that its fragile domestic economy is ill-prepared to mount a trade war with much of the rest of the world.
