China to Adopt Limited Retaliation Against EU’s Tariff Increases on Chinese Electric Cars
In response to the European Union’s decision to increase tariffs on Chinese electric cars, China is expected to take limited and targeted retaliation measures. Beijing is cautious about responding too strongly, as it could provoke further trans-Atlantic alignment against China and undermine President Xi Jinping’s efforts to encourage “strategic autonomy” in Europe. The Chinese Commerce Ministry and its chamber of commerce in the EU have criticized the EU’s move.
Limited Retaliation to Avoid Trade War
While retaliation may help deter further trade protection measures globally, Beijing is keen to avoid triggering a full-blown trade war. Aggressive tariffs could lead to further tensions with the United States, which is already considering increased trade pressure on China. Under President Joe Biden, advanced economies have been coordinating efforts against China, with the Group of Seven recently calling out the nation for distorting the global economy. To prevent a trade war, China is likely to respond with measured retaliatory actions.
Focus on Agricultural Items and Liquor Products
Merics, a Berlin-based research institute, predicts that Chinese retaliation will primarily target agricultural items like cheese and pork. It is worth noting that China has already filed a formal request for an anti-dumping investigation into pork imports from the EU. This could have a significant impact on Spain, the largest EU supplier of pork to China. Additionally, China has initiated a probe into European liquor products like brandy, a major export of France. Targeting these specific industries allows China to maximize its retaliatory impact.
Selective Targeting and Avoiding Overreaction
To apply pressure, China may calibrate its retaliatory moves to target specific EU members or districts. This selective targeting strategy can be effective in sending a strong message while avoiding an overreaction that could jeopardize both China’s aims and the European market for Chinese electric vehicles. Maintaining strategic autonomy is crucial for China, and it wants to avoid getting caught up in a tariff war that could hinder its EVs’ entry into the European market.
Limited Impact of EU’s Tariff Increases on Chinese Carmakers
The efficiency of Chinese carmakers means that even with higher tariffs, they can still generate profits. Furthermore, Chinese companies are rapidly building factories in Europe, which would reduce the impact of import measures. Beijing’s priority is to enable its EVs to enter the European market, and it likely wants to avoid escalating tensions.
Bilateral Engagement and Potential Negotiations
Despite the initial backlash, there is still room for negotiation between China and the EU. The EU has reached out to Chinese authorities to discuss the tariff increases and explore possible resolutions. Dean Tu Xinquan from the China Institute for WTO Studies believes there is time for coordination and decisions to be made, even after the tariffs are imposed. This indicates that both sides are open to finding a resolution through bilateral engagement.
China’s Strong Opposition and Potential Actions
China has vehemently opposed the EU’s decision and may lodge a complaint with the World Trade Organization. However, in the meantime, China may engage in bilateral discussions with the EU to address the issue. Beijing privately warned the EU that sectors such as aviation and agriculture could be targeted before the EU’s tariff increase decision. While China has carrots to offer, such as potential aircraft sales to France-based Airbus SE, it is also prepared to use the stick, according to Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA.
Conclusion
In response to the EU’s tariff increases on Chinese electric cars, China is likely to adopt limited retaliation measures. Avoiding a trade war is a top priority for Beijing as it faces increasing trade tensions with the US and growing coordination among advanced economies against China. By selectively targeting agricultural items and liquor products, China aims to send a strong message while avoiding a disproportionate response. Bilateral engagement and potential negotiations offer hope for a resolution, but China remains determined to respond effectively to protect its interests.