What the tariff dispute with China means for car buyers

The EU wants to make imports of electric cars from China more expensive - which threatens to escalate the trade conflict with the country. What does this mean for the German car industry and for consumers?

There is a lot at stake for German car manufacturers: Volkswagen sells more cars in China than in any other country in the world. Most recently, it was more than three million a year. BMW and Mercedes are also talking about hundreds of thousands of vehicles that they deliver to the People’s Republic every year.

“Punitive tariffs are of course no fun for the German car industry. The German car manufacturers in particular – Volkswagen, Mercedes, BMW and Porsche – are heavily dependent on the Chinese market,” says Frank Schwope, lecturer in automotive economics at the FHM University of Applied Sciences in Hanover. For them, it is a catastrophe because the Chinese government will certainly take countermeasures.

Retaliation or compromise?

That is exactly what the Chinese government has already threatened. The Foreign Ministry in Beijing announced that it would resolutely defend its own interests. The EU, however, is convinced that Beijing is distorting competition with subsidies.

Brussels is specifically threatening higher import tariffs. However, the EU Commission is trying to find another solution with China. Three manufacturers are in focus: an import tariff of a good 17 percent would apply to cars from BYD, 20 percent to vehicles from Geely, and 38 percent to cars produced by SAIC.

Can German car manufacturers offset possible losses in China if they now sell more cars in Europe? Frank Schwope is skeptical: “This will certainly have the effect that one or the other will not buy a Chinese car in Europe, but will buy a German or European one instead – but that can never make up for the effects in China.”

The fear is also reflected on the stock market: shares in Volkswagen, BMW, Mercedes and Porsche have fallen significantly as a result of the reports from Brussels. Brands from southern Europe, on the other hand, could benefit from higher tariffs.

Controversial among economic experts

The introduction of tariffs is also controversial among economists. The head of the Munich ifo Institute, Clemens Fuest, said that the EU should refrain from imposing them: A trade war would not help anyone, said Fuest. Among industrial groups in Germany, however, a clear majority have spoken out in favor of tariffs. This is the result of a survey by the German Economic Institute (IW). According to the survey, many companies in Germany complain that the Chinese government is distorting competition.

For automotive competitors from France, such as Peugeot, Renault and Citroen or Fiat from Italy, the Chinese market is far less important, says Frank Schwope: “The French have sold perhaps 40,000 cars in China in recent years. Curiously, Fiat has sold fewer cars in China than Ferrari.”

Spiral of tariffs and counter-tariffs looms

The spiral of tariffs and counter-tariffs could now really get going – and possibly spread to other sectors. How can European manufacturers position themselves in this situation?

Robert Halver, capital market strategist at Baader Bank, says: “German products, European products, they have to be so innovative, they have to be so technically sophisticated that they will be bought all over the world anyway. That means you have to work on the products, that’s very important.”

But high-quality products have their price. And so the dispute over import duties on electric cars will be felt above all by customers, says car expert Frank Schwope: “Vehicles will of course become more expensive, especially in the small car segment, where a lot is to be expected from the Chinese side – or in the compact car class. That is of course a catastrophe for consumers if they suddenly have to pay 2,000, 3,000 or 4,000 euros more for a car that they can get today at much cheaper conditions.”

The exact consequences of the tariff dispute are currently difficult to predict. But one thing is clear: the victims are not necessarily just the manufacturers, but also the consumers.

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