China Reportedly Dangles Perks For German Automakers To Halt EV Tariffs
European automaker shares surged on Monday as China suggested that Germany's luxury car manufacturers could benefit if the EU eliminates upcoming tariffs on Chinese electric vehicle exports, according to a Bloomberg report. This comes after a weekend discussion between Chinese and European trade negotiators.
On Saturday, Chinese Commerce Minister Wang Wentao and EU Trade Commissioner Valdis Dombrovskis spoke via a video conference call about trade disputes between the EU and China surrounding the EU's move to impose a tariff as high as 48% on EVs shipped from China as of July 4.
The Bloomberg report specified the ongoing economic chess game between the EU and China in resolving the upcoming EV tariffs:
China floated lowering its existing tariffs on large-engine cars in return for scrapping planned EV levies on imports from the Asian nation, said the people, who spoke on condition of anonymity to discuss private talks.
China's Commerce Minister Wang Wentao hinted at the possibility of the advantages to his German counterpart Robert Habeck during a meeting on Saturday in Beijing, one of the people said. His three-day visit to the world's No. 2 economy came weeks after the EU proposed hiking charges on electric cars to as high as 48% later this year.
The exchange reflects a mismatch between how the EU and China are approaching the dispute. The European Commission says it's setting tariffs based on the legal conclusions of an in-depth study into Beijing's massive state subsidies. The levies aim to level the playing field by offsetting the Chinese aid with something of equal value. -Bloomberg
The EU faces a significant risk if the tariffs are imposed on July 4, as Beijing could retaliate with a tit-for-tat effort, slapping 25% tariffs on large European cars, including those from German luxury automakers like Mercedes-Benz Group AG and BMW AG. This move would undoubtedly impact the bloc's largest economy and cause more financial misery.
"The EU could always opt to postpone the imposition of tariffs, pending the outcome of negotiations," Deborah Elms, head of trade policy at the Hinrich Foundation, said, adding, "As long as the two sides are making sufficient progress towards an answer, it's possible to stop the clock."
In markets, the news sent the Stoxx 600 autos and parts index up 2.2% in Frankfurt trading. Volvo Cars and German automakers traded up the most in terms of percentage, with the Swedish firm up 5.9% while Porsche AG gained 3.6%, Volkswagen +2.7%, BMW +3.5%, and Mercedes +2.5%. French car parts Forvia and Valeo were the only decliners.
Bloomberg said, "The EU is open to solutions that would achieve the same effects as countervailing tariffs, but those would need to abide fully by World Trade Organization rules."
"I'd be surprised if we see anything significant before an 11th-hour offer from China just prior to the deadline for final penalties in early November," Scott Kennedy, a China specialist at the Center for Strategic and International Studies, added.
