Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / China Electric Vehicle Exports Face EU Tariff Escalation
Transcript
- Lucas: So, the European Union's additional tariffs on Chinese electric vehicles officially took effect this month, and the numbers are pretty stark. BYD faces a 27.4 percent extra duty on top of the standard 10 percent. For SAIC, it's 48.1 percent. Luna: 48 percent? That's essentially a semi-blockade for SAIC's European ambitions. Lucas: Exactly. And the EU Commission didn't stop there. Geely gets 21.3 percent. Other cooperating companies get 21 percent, and non-cooperating ones get hit with the full 48.1 percent. This is a targeted escalation, not a blanket tariff. Luna: It reminds me of the US Section 301 tariffs on Chinese goods back in 2018, but faster. The EU launched this anti-subsidy investigation in October 2023, and now, less than three years later, tariffs are live. Lucas: Right, and unlike the US tariffs, which were across the board, these are calibrated per company based on the level of subsidies the EU claims each received. BYD got a lower rate because it cooperated more fully with the investigation and provided more data. Luna: So the strategy is clear: punish the least cooperative while giving a slightly softer landing to the biggest player. But 27 percent on BYD is still enormous. Lucas: It is. Let's put it in context. The standard EU car import duty is 10 percent. So BYD faces 37.4 percent total. For a car priced at 30,000 euros, that's over 11,000 euros in tariffs alone. That's going to push retail prices significantly higher than comparable European models. Luna: And the Chinese response? I saw Beijing hinted at retaliatory tariffs on European pork and brandy. Lucas: They did, but the real story is what Chinese EV makers are doing on the ground. BYD is already building a factory in Hungary. SAIC has a plant in Hungary too. Chery is setting up in Spain. And there's growing interest in Morocco as an export hub for Europe. Luna: Morocco? Why Morocco? Lucas: Morocco has free trade agreements with both the EU and the US. It also has a growing auto parts ecosystem. Chinese battery makers like Gotion High-Tech are already investing there. So if you can assemble the car in Morocco, you bypass the EU tariff entirely. Luna: That's the classic tariff circumvention play. Build a factory in a country that has a trade deal with your target market. Lucas: Exactly. And the EU knows this. That's why the anti-subsidy regulation includes provisions to extend tariffs to cars assembled in third countries if they use too many Chinese parts. So it's a cat and mouse game. Luna: Let's talk numbers for a second. The yuan is at 6.80 per dollar, basically flat. That helps Chinese exporters because a weaker yuan makes their goods cheaper. But against the euro, the yuan has actually strengthened a bit this year. So that tariff bite is even bigger in yuan terms. Lucas: Good point. The People's Bank of China has been managing the yuan tightly, keeping it around 6.80 for months. That stability helps Chinese companies plan, but it doesn't offset a 37 percent tariff. Luna: And the broader trade picture? China's goods trade surplus is still huge, but the current account deficit widened to 226.8 billion in the first quarter. Lucas: That's partly because of services imports—travel, education, and increasingly, technology licensing. But on goods, China's export machine is still humming. The EU tariffs on EVs are a targeted blow, not a systemic one. Yet. Luna: Yet. Because if other industries follow—like solar panels or batteries—the cumulative effect could be significant. Lucas: Let's look at what this means for investors. The iShares China Large-Cap ETF, ticker FXI, is down about 2.2 percent in the past five days. The KraneShares CSI China Internet ETF, KWEB, is up slightly. So markets are not panicking. Luna: But some individual stocks are moving. Baidu is up 6 percent in the last five days, while Alibaba is down over 3 percent. Pinduoduo is flat. Lucas: Baidu's pop is probably tied to its autonomous driving unit, not EV tariffs directly. Alibaba's drop might be more about regulatory overhang. But the EV supply chain stocks—like battery makers—are definitely under pressure. Luna: So the question is: will the EU tariffs actually reduce Chinese EV sales in Europe, or just shift production? Lucas: Short term, they'll reduce sales because prices go up. Long term, Chinese companies will build factories in Europe and nearby. BYD's Hungary plant is expected to start production in 2027. That's not that far away. Luna: And European automakers are caught in the middle. They want to avoid cheap Chinese EVs flooding the market, but they also rely on Chinese batteries and components. Volkswagen has joint ventures with Chinese battery makers. BMW sources batteries from CATL. Lucas: So the tariffs hurt European automakers too, by raising their input costs if they source from China. That's the irony of protectionism in a global supply chain. Luna: One more data point: China's exports of goods and services hit 3.5 trillion dollars in Q1, up from 3.35 trillion a year earlier. So the export engine is still strong, even if EVs take a hit. Lucas: Right. EVs are a high-profile, high-growth sector, but they're still a fraction of China's total exports. The bigger story is that China is diversifying its export destinations—more to Southeast Asia, the Middle East, and Latin America. Luna: And that's where the trade war shifts. The US and EU are raising barriers, so China pivots to emerging markets. The Belt and Road digital infrastructure push we talked about a few episodes ago fits right into that. Lucas: If walking through the economy with us has made something click—maybe today's tariff breakdown or the supply chain angle—that's the kind of thing that keeps this show ad-free. If it was worth a coffee to you, you can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, genuinely. We don't do ads, we don't have sponsors, and that only works because listeners like you chip in. It's a small thing that makes a big difference for us. Lucas: Anyway, back to the tariff story. One thing I want to watch is how the EU responds to Chinese factory investments in Hungary and Spain. Hungary is already seen as pro-China within the EU, and that could create political friction. Luna: Absolutely. If Chinese factories in Hungary start exporting EVs tariff-free to other EU states, countries like France and Italy—which pushed for these tariffs—might cry foul. Lucas: Exactly. The EU's own rules of origin will matter here. A car assembled in Hungary with a Chinese battery might not qualify as 'European' enough. The definition of 'sufficient transformation' is going to be a huge negotiating point. Luna: And there's the carbon piece too. The EU's carbon border adjustment mechanism will eventually apply to vehicles. If Chinese EVs are made with coal-powered electricity, that adds another cost. Lucas: Right. So the tariff is just one layer. There's also the carbon cost, the rules of origin, and potential future anti-subsidy investigations on other products. This is an evolving framework, not a one-time event. Luna: Let's zoom out. What does this mean for the average Chinese consumer or worker? Lucas: For workers in Chinese EV factories, it means uncertainty. Some factories are already slowing hiring. But the bigger effect might be on the domestic market: as export growth slows, more EVs are sold inside China, which keeps prices competitive but also pressures margins. Luna: And for European consumers? Higher prices, fewer choices. The affordable Chinese EVs that were supposed to democratize electric mobility may not arrive at the promised price points. Lucas: Unless the Chinese companies absorb some of the tariff cost, which would hit their margins. BYD has room because its margins are decent, but SAIC is in a tougher spot. Luna: So the bottom line: the EU tariffs are a significant headwind, but not a knockout blow. Chinese EV makers are adapting, and the global supply chain is shifting in response. Lucas: Exactly. And that adaptation—new factories, new trade routes, new partnerships—is what we'll keep tracking. In six months, we'll have a much clearer picture of who wins and who loses. Luna: And in the meantime, the yuan at 6.80, the trade balance, and the stock moves will tell us a lot. Good episode. Lucas: Agreed. Thanks for listening.