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In this piece, we argue that there is a high probability that the EU will increase the tariff on Chinese electric cars, but there are also good arguments why that might not lead to a large-scale trade war.

The EU Commission has rung alarm bells over a doubling of the EU-China trade deficit over the past three years and in October 2023 launched an anti-subsidy probe into Chinese battery energy vehicles (BEVs).

We find it likely that EU will raise the tariff on imports of Chinese BEVs from 10% to around 20-25% when the investigation is concluded (by November this year). China will likely retaliate and potentially hurt specific smaller European sectors a lot. However, we think they will be careful not to scare of foreign companies more broadly and thus will choose a moderate overall response.

Trade tensions are likely to be a rising topic since China has become a leader in a long list of green products such as BEVs, batteries and solar panels – products that will see high European demand in coming years and where EU aims to de-risk from China.

Full report in PDF.

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