China-Germany: Trying To Avoid A Head-On Collision Over Electric Cars

–Analysis–

BRUSSELS — Germany’s Chancellor Olaf Scholz has a reputation for being a procrastinator. But when it comes to the crisis-ridden German car industry, he doesn’t hold back. Scholz ensured that Germany voted against the introduction of tariffs on Chinese electric cars in Brussels earlier this month.

In the end, however, he was unable to get his way. In order to prevent the car tariffs, a majority of member states — to represent at least 65% of the EU population — would have been needed. But the heavyweights France, Italy, Poland and a number of smaller states voted in favor of tariffs.

From the perspective of these other European countries, the EU’s tariffs are not a hostile act, but a legitimate reaction to the fact that the Chinese are distorting competition with their state subsidies, and can therefore charge lower prices for their cars than their foreign competitors.

The Chancellor no doubt expected the defeat, as the positions of the individual member states had been known for some time. It can therefore be assumed that Scholz wanted to send two messages with his ‘No’ vote, one towards the German car industry and one towards Beijing.

Trying to please Beijing

The German car industry had campaigned loudly for the rejection of the tariffs. The president of the German Association of the Automotive Industry, Hildegard Müller, said that the potential damage of introduction tariffs was “greater than any possible benefit.” China is one of the most important sales markets for the German automotive industry.

Beijing, on the other hand, had warned against the tariffs and threatened to take countermeasures. One interpretation of Germany’s voting behavior would therefore be: Scholz hoped that his No vote would protect Germany from a harsh reaction from China.

There is still no common European policy on China.

It is not unusual for a member state of the EU to break rank when it comes to China. Despite all efforts, there is still no common European policy on China. Germany, France, Italy — everyone wants to do good business with the Chinese. As a result, the much-vaunted European solidarity is being damaged, along with the bloc’s business reputation. But this is accepted in Europe’s capitals, even in times of heightened geopolitical competition.

Germany has a lot of experience in pushing through the interests of the automotive industry in Brussels — if necessary, even with tough tactics. This has repeatedly caused resentment among its alliance partners, which Germany has ignored, because it always felt strong enough to throw its weight around. But the German governments’ ability to shape Europe has recently diminished. The decision to oppose the tariffs is likely to accelerate this not-so-gradual process.

China’s countermeasures

The crucial question, however, is whether Scholz’s economic policy calculations will work out. In other words, whether he was able to appease the Chinese.

One thing is clear: the government in Beijing has responded with initial countermeasures. From Oct. 11, the country imposed tariffs of 35.8% to 39% on brandy imported from the EU. This will hit France particularly hard. French brandy producers export 25% of their products to China. The European Commission reacted immediately. According to a spokesperson, it will “defend European industry against the abuse of trade defense measures.”

Representatives of the French cognac industry promptly urged an end to “this escalation.” Sophie Primas, French Minister for Foreign Trade, said: “We are very disappointed, because President Xi Jinping had given assurances during his visit to Paris.”

The Chinese have already set their sights on other imported goods from the EU: dairy products, pork — and also vehicles. The Chinese Ministry of Commerce announced last week that it was considering taking action against cars “with large combustion engines.” As a result, shares in BMW and Mercedes came under pressure on the stock markets.

Car clash?

It is still uncertain whether this will happen in the end. The government in Beijing knows very well that it can target the individual EU member states and play them off against each other: with tariffs on cognac it hits France, with tariffs on pork it hits Spain, with tariffs on combustion vehicles it hits Germany.

Both sides claim that they want to avoid an open trade conflict. Trade Commissioner Valdis Dombrovskis said that Europe must both defend its industrial interests and avoid a “large-scale confrontation with strategic players such as China.” It was therefore necessary to “keep the negotiations open and exhaust all possibilities for a compromise solution.”

In fact, solutions are being sought behind the scenes.

The tariffs on electric cars from China are not due to take effect until the end of the month. Only then will it be clear whether Scholz has gambled away the German car industry.