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The European Union’s countervailing duties on electric vehicles from China: Disputes and prospects

ZhongXiang Zhang

China’s advantage in the global industrial chain is now not only reflected in the mid to low-end manufacturing industry, but also concentrated in the technology track represented by ‘the new three’: electric vehicles (EVs), lithium-ion batteries and photovoltaic (PV) products. From 2019 to 2023, the total export value of China’s ‘new three’ increased from US$33.6 billion to US$146.5 billion, with an annual average growth rate of 44.5 per cent (Yang et al. 2024). Given that in 2023 the Chinese yuan depreciated by 4.5 per cent against the US dollar, the growth rate is even higher in terms of the yuan: in 2023, total exports of the ‘new three’ reached RMB1.06 trillion, breaking through the one-trillion-yuan mark for the first time and reaching 18.3 per cent of China’s trade surplus. In 2023, 60 per cent of global EV production was in China and one in every four cars exported by China was an EV, totalling 1.2 million vehicles.

The rapid increase of Chinese-made EVs raises a variety of concerns outside China, particularly in the European Union and the United States. The European Union and the United States as well as a growing number of other developed countries accuse China of heavily subsidising its locally made EVs, and argue that imports of these subsidised vehicles distort their EV markets and hurt their EV industry. A growing number of countries have enacted regulations and trade measures to restrict imports of Chinese-made EVs. The European Union even initiated an anti-subsidy investigation into imports of EVs from China, and its member states have agreed to impose definitive countervailing duties on imports of battery electric vehicles (BEVs) from China. As would be expected, China has claimed that the European Union’s decision violates World Trade Organization (WTO) rules and undermines global cooperation on tackling climate change. China has filed an appeal to the WTO dispute-settlement mechanism over the European Union’s countervailing measures; requested WTO consultation over tariffs placed on EVs by Canada and Türkiye; and has criticised the United States for abusing the review process of Section 301 tariffs to further raise tariffs on Chinese-made EVs.

This chapter analyses why the European Union began imposing high countervailing duties on Chinese-made EVs when they were not yet common on the streets of Europe, and the differences between and logic of the European Union and the United States. It also examines the level of countervailing duties that the European Union must impose on Chinese EVs to diminish their competitiveness in European markets, and the impact of additional countervailing duties on the European Union itself and Chinese EV exports to Europe. It looks at why the European Union decided to negotiate with China on a minimum price after imposing countervailing duties but was particularly cautious about taking the lowest-price approach. It explores the significance and limitations of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products’ authorisation of representatives to negotiate on behalf of Chinese EV manufacturers, the possibility of implementing a hybrid scheme of countervailing duties and minimum prices, and the impact of the re-election of Donald Trump as President of the United States on the direction of the China–EU EV tariff dispute. The chapter also discusses overseas investment by Chinese EV companies and ends with a discussion of the ways to move this dispute forward.

Why do Chinese-made EVs dominate the market?

Why do Chinese-made EVs dominate the EV market? The United States and the European Union accuse China of providing heavy subsidies (see Figure 6.1). Several studies undertaken by US think tanks provide analyses to support this accusation, but China denies the claims.

Figure 6.1: Total Chinese Government spending on the new-energy vehicle sector (RMB billion)

Source: DiPippo et al. (2022).

The European Commission (Draghi 2024) estimates that Chinese subsidies for clean tech manufacturing have long been twice as high as those in the European Union as a share of GDP, while China has protected its home market for solar PV, wind power generation equipment and EV batteries. These policies have left the European Union with a significant cost disadvantage—for example, solar PV manufacturing costs in China are 35–65 per cent lower than in Europe and costs for manufacturing battery cells are 20–35 per cent lower (IEA 2024a). According to estimates by the Center for Strategic and International Studies (DiPippo et al. 2022; White et al. 2023), cumulative government support to the EV sector in China¹ totalled RMB393 billion (US$58 billion) between 2009 and 2017. This support jumped further, to RMB560 billion, from 2018 to 2021. The Organisation for Economic Co-operation and Development (OECD 2021, 2023) estimates that Chinese industrial firms received government support equivalent to about 4.5 per cent of their revenue. The largest part of this support comes in the form of below market rate lending. This support, combined with tax concessions and government grants, means Chinese firms may receive almost nine times more government support (relative to sales) than comparable firms in the OECD. According to the information in Chinese automaker BYD’s annual reports, direct government subsidies to the company increased from about €200 million in 2020 to €600 million in 2021 and €2.1 billion in 2022. Relative to business revenue, this corresponds to an increase in direct subsidies from 1.1 per cent in 2020 to 3.5 per cent in 2022 (Bickenbach et al. 2024).

China disputes these accusations, and it is fair to say that neither side provides the full story. Subsidies have played a crucial role, particularly in the early phase of EV development, and are widely used in China, but the market advantage of Chinese EVs is not due solely to subsidies, but rather is the result of multiple factors working together: early moves to establish well-planned industrial layouts, long-term industrial policy guidance, long-term subsidies (activating huge domestic demand), continuous increases in research and development investment (upgrading batteries and intelligent technology), an especially large domestic market (the scale effect strengthened by internal competition, providing huge pressure to lower production costs and selling price), industrial chain advantages and a rich pool of engineers and skilled workers.

China’s EV production accounts for more than 60 per cent of the global total. However, most of this is consumed domestically. In 2023, almost 9.5 million Chinese-made EVs were sold in China and only 1.2 million were exported—accounting for less than 15 per cent of annual output. Moreover, exports of Chinese EVs are mainly by purely foreign brands, such as Tesla; Sino-foreign brands, such as BMW; or acquired foreign brands, such as MG. In 2023, Tesla’s Shanghai factory produced 947,000 EVs, of which 344,000 were exported. Tesla exports alone accounted for 29 per cent of China’s total EV exports. According to the European Federation for Transport and Environment (T&E 2024), Europe’s leading advocates for clean transport and energy, in 2023, 19.5 per cent of the approximately 300,000 EVs sold in Europe were made in China (see Figure 6.2). About 60 per cent of newly registered cars from China were foreign brands, such as Tesla (28 per cent), Dacia (20 per cent) and BMW (6 per cent), while SAIC MG accounted for 25 per cent. BYD, Polestar and other Chinese brands account for only 3 per cent of all EVs exported to Europe. This indicates that the European EV market is not only dominated by non-Chinese car companies, but more importantly, overseas capital also profits greatly from such exports.

Figure 6.2: Chinese-made electric vehicles set to reach one-quarter of EU sales

Note: OEM = original equipment manufacturer.

Source: T&E (2024).

China as the world’s largest exporter of automobiles

According to statistics from the China Association of Automobile Manufacturers, China exported 4.91 million vehicles in 2023, becoming the world’s largest exporter of automobiles. The volume of exported vehicles further increased, to 5.86 million units, in 2024, consolidating China’s position. The reason China has become the largest exporter is because multinational car companies have long achieved ‘localised production’. In 2022, Japanese carmakers sold approximately 23.5 million units globally, only 3.8 million units of which (16 per cent) were sold in the Japanese market; and most of those sold outside the domestic market were sold in the countries in which they were made. Toyota has been ranked first in global sales for four consecutive years. In its fiscal year ending March 2024, Toyota sold 10.30 million units globally, with 1.53 million sold inside Japan. Clearly, the number of exported Chinese-made vehicles was about one-quarter of the number of Japanese cars sold outside Japan.

While China exported almost 1.3 million EVs in 2024, most of its car exports are conventional fuel vehicles. Logically, if Europe and the United States believe China has overcapacity in the automotive industry, it should be reasonable to demand that China limits its production of traditional fuel vehicles. However, the European Union and the United States are demanding only that China restrict its production capacity of EVs—an important issue that then US treasury secretary Janet Yellen and then German chancellor Olaf Scholz discussed with top Chinese leaders during their visits to China in April 2024.

The reason is that Chinese traditional fuel vehicles cannot compete with foreign manufacturers, particularly high-end brands, but multinational companies lack competitiveness and pricing power for EVs.

In general, multinational enterprises in developed countries enjoy a considerable period of excess profit dividends brought by technological leadership, until later players can become competitive or even surpass them. However, EVs have broken the norm and multinational car companies have not had this opportunity, or at least it has been greatly weakened. Even worse, they are currently at a competitive disadvantage against Chinese EVs, so it is not difficult to understand their accusations of overcapacity in China’s EV production.

Europe and the United States are, however, catching up with battery technology for EVs. California requires that by 2035, 50 per cent of all heavy-duty trucks sold will be pure electric, and the state is committed to achieving 100 per cent renewable energy by 2045. Other states in the United States are launching incentive packages to attract investors to build EV factories, sparking a wave of EV subsidies. The US Environmental Protection Agency introduced the strictest climate change regulations in its history, ensuring that two-thirds of new cars sold in the United States by 2032 are EVs. On 2 March 2023, ‘Tesla Super Factory Investment Day’, its CEO, Elon Musk, stated that Tesla would achieve its annual sales target of 20 million by 2030; Tesla had a delivery volume of just 1.31 million vehicles in 2022. In the European Union, the Net-Zero Industry Act sets the basic goal of strategic net-zero technology by 2030. Battery manufacturing capacity must be expanded to 550 gigawatt hours (GWh)—7.3 times that of the existing EU capacity—and meet 90 per cent of the union’s annual expected demand by 2030 (European Parliament 2025; Zhang 2024).

Lithium, cobalt and nickel are used in the production of EV batteries. The European Critical Raw Materials Act identifies a list of materials crucial for technologies needed for the green and digital transition and sets benchmarks for domestic capacity along the supply chain to be reached by 2030: 10 per cent of the European Union’s annual needs for extraction, 40 per cent for processing and 25 per cent for recycling. Moreover, to ensure EU independence over imports from single-country suppliers, the Act specifies that no more than 65 per cent of the union’s annual needs of each strategic raw material at any relevant stage of processing should come from a single third country (EC 2024a).

Trade measures to restrict imports of Chinese-made EVs

Given that existing production capacity differs significantly from expected targets, the European Union has set policies to speed up the development of their own battery and EV industries and make up insufficient battery production. To stop or at least slow Chinese EV imports, Europe and the United States have elevated batteries and EVs to the status of strategic technology/industry and introduced subsidies and related support policies, as well as further regulations and trade measures.

In August 2022, the US Congress approved the Inflation Reduction Act (IRA), with US$369 billion disbursed for measures dedicated to improving energy security and accelerating the clean energy transition. The IRA imposes restrictions on imported batteries, battery critical materials and vehicle assembly areas required to produce EVs. Specifically, the IRA provides a maximum credit of US$7,500 for each new EV that is assembled in North America: US$3,750 if the specified percentage of battery components was manufactured or assembled in North America and US$3,750 if a percentage of critical minerals in the battery were extracted or processed in the United States or countries with which it has free-trade agreements. Moreover, beginning in 2024, to be eligible, a clean-energy vehicle could not contain any battery components manufactured or assembled by a ‘foreign entity of concern’ (FEOC) and, beginning in 2025, an eligible clean-energy vehicle may not contain any critical minerals extracted, processed or recycled by a FEOC (US Treasury 2023).

Classifying China as a FEOC means that for the manufacturer’s suggested retail price that does not exceed US$80,000 for sports utility vehicles (SUVs), vans, pickups and electric sedans weighing less than 6.9 tonnes and US$55,000 for all other electric sedans, Chinese car companies will not receive a full credit of US$7,500, which will greatly affect their competitiveness. The United States claims these measures have nothing to do with politics or ideology. This is the dilemma that China’s EV makers continue to face in exporting to and investing in factories in places such as the United States. The US decision to upgrade batteries to a strategic technology will restrict its ability to achieve energy conservation and carbon emissions reduction faster and at a lower cost.

On 14 May 2024, then president Joe Biden announced that the United States would apply Section 301 tariffs on an estimated US$18 billion worth of goods from China. The new measures included quadrupling tariffs on all EVs from China, from 25 per cent to 100 per cent. The existing tariffs were introduced during the previous Trump administration. The increase was made as part of a planned review of policy. Before he was elected for the second time, President Donald Trump said he would consider a 60 per cent tariff on all Chinese imports. In September 2024, the US Commerce Department (BIS 2024) proposed prohibiting the import and sale of vehicles containing certain hardware and software emanating from China on national security grounds. The proposal focused on hardware and software integrated into the vehicle connectivity system and software integrated into the automated driving system. The move is a significant escalation in the United States’ ongoing restrictions on Chinese vehicles, software and components, and would effectively bar nearly all Chinese cars from entering the US market.

The European Union is also very concerned about the rapid rise in low-priced BEVs coming from China, distorting the EU market. On 4 October 2023, the European Commission initiated an investigation into EV imports from China, focusing on whether these were being subsidised by the Chinese Government, whether such subsidies were hurting the European Union’s EV industry and whether imposing countervailing measures would be in the European Union’s interests. The investigation was to conclude within 13 months of initiation.

The investigation targeted a sample of three Chinese producers: BYD, Geely and SAIC. Tesla (Shanghai) was not included despite its large volume of exports to the EU market. The Chinese Government and the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) argued that by not including Tesla (Shanghai) in the sample, the European Commission distorted the subsequent findings by artificially increasing the weighted average duty applicable to the cooperating non-sampled Chinese exporting producers. The European Commission disagreed with these claims. As explained in Recital 30 of the final regulation, the commission accepted the individual examination request of Tesla (Shanghai) given its simple corporate structure, which gave the commission sufficient time and resources to examine the company. No other individual examination requests were received. Furthermore, in Recital 756 of the final regulation, the commission argued that imports of Teslas from China were not expected to increase significantly as the company’s spare production capacity was very low (EC 2024b).

On 4 July 2024, nine months after the initiation of the investigation, the European Commission had imposed provisional countervailing duties on imports of BEVs from China. Based on the investigation, the commission concluded that the BEV value chain in China benefits from unfair subsidisation, which is threatening economic injury to EU BEV producers. The individual duties applying to the three sampled Chinese producers were: BYD, 17.4 per cent; Geely, 19.9 per cent; and SAIC, 37.6 per cent. Other BEV producers in China that cooperated in the investigation but were not sampled were subject to the 20.8 per cent weighted average duty. The duty for all other non-cooperating companies was 37.6 per cent.

Following a request, Tesla may receive an individually calculated duty rate (EC 2024c), but otherwise provisional duties were adjusted slightly downwards based on comments on the accuracy of the calculations submitted by interested parties. These provisional duties applied as of 5 July 2024, for a maximum of four months. Within that time frame, a final decision was to be taken on definitive duties, through a vote by EU member states. When adopted, this decision would make the duties definitive for five years (EC 2024d).

On 20 August 2024, based on comments received from interested parties on the provisional measures, as well as the finalisation of the investigation, the European Commission disclosed slightly adjusted countervailing duties on imports of BEVs from China: BYD, 17.0 per cent; Geely, 19.3 per cent; SAIC, 36.3 per cent; other cooperating companies, 21.3 per cent; and all other non-cooperating companies, 36.3 per cent (see Table 6.1). Teslas from China were granted an individual duty rate of 9 per cent. The commission also decided not to retroactively collect countervailing duties (EC 2024e).

On 4 October 2024, the EC proposal to impose definitive countervailing duties on imports of BEVs from China obtained the necessary support from member states for the adoption of the tariffs (EC 2024f). On 29 October, the commission concluded its investigation by imposing definitive countervailing duties on BEV imports from China for five years. Chinese exporting producers were subject to the following duties: BYD, 17.0 per cent; Geely, 18.8 per cent; SAIC, 35.3 per cent; other cooperating companies, 20.7 per cent; and all other non-cooperating companies, 35.3 per cent. Teslas from China were granted an individual duty rate of 7.8 per cent. The commission decided not to retroactively collect the duties.

Table 6.1: EU countervailing duties on battery electric vehicle imports from China (%)

BEV producers from China	Provisional, 12 June 2024	4 July 2024	20 August 2024	Definitive, 29 Oct 2024
BYD	17.4	17.4	17.0	17.0
Geely	20.0	19.9	19.3	18.8
SAIC	38.1	37.6	36.3	35.3
Other cooperating companies	21.0	20.8	21.3	20.7
All other non-cooperating companies	38.1	37.6	36.3	35.3
Tesla	Individually calculated		9	7.8

Sources: European Commission (2024b–e).

The European Commission noted that, between October 2023 and January 2024, the European Union imported 177,839 Chinese EVs—an increase from the period covered by the EC investigation (October 2022 to September 2023) of 14 per cent, and an increase in the average monthly import volume of 11 per cent (EC 2024g). This surge is understandable because car manufacturers were racing to ship EVs produced in China to the EU market before the new tariff measures came into effect, betting that the duties would not be collected retrospectively.

With the European Union and the United States imposing tariffs on Chinese-made EVs, other countries soon followed suit. In August 2024, Canada announced that it would impose 100 per cent tariffs on Chinese-made EVs from 1 October 2024, over concerns about unfair subsidies.

Türkiye had introduced tariffs on EVs imported from China in March 2023 and implemented regulations on EV maintenance and services. In June 2024, Türkiye announced it would impose an additional 40 per cent tariff on all vehicles imported from China, effective from 7 July 2024, and extended to include internal combustion engines and hybrid vehicles from China. The additional tariff was set at a minimum of US$7,000 per vehicle, basically barring budget Chinese vehicles from entering the Turkish market. In September 2024, Türkiye implemented import licence restrictions, stipulating that importers must have 20 authorised service stations in seven different regions of the country before importing plug-in hybrid vehicles not produced by the European Union or countries with a free-trade agreement with Türkiye.

The European Union remains open to a negotiated solution

The share of Chinese-made EVs in the EU market is very small. Based on statistics from the European Commission (EC 2024h), imports of Chinese brands increased to 14.1 per cent in the second quarter of 2024, from 1.9 per cent in 2020. Even fewer Chinese-made EVs are imported into the United States. However, both the European Union and the United States decided to act well before Chinese-made EVs could become widespread in their markets.

Differing from the usual practice, the investigation into Chinese EV subsidies was initiated by the European Commission itself and was not based on an industry complaint. As then US commerce secretary Gina Raimondo said, ‘We’re not going to wait until our roads are filled with Chinese-made EVs and the risk is extremely significant before we act’ (Reuters 2024).

It has been suggested that the European Union should refrain from imposing tariffs as it needs low-priced Chinese EVs to help it achieve its green transition and meet its climate goals. Valdis Dombrovskis, the then European Commissioner for Trade, rebutted such suggestions, contending that the ‘argument can be made on any trade-distorting subsidies. But the point is that we have a major EU car industry, and this car industry is at risk if we allow this kind of distortion of the level playing field.’ He said the tariffs, which vary by brand but will average 20.8 per cent, on top of an existing 10 per cent, would not close the market to Chinese imports, just level the playing field (Bounds 2024). The European car industry provides 13 million jobs and contributes 7 per cent of the European Union’s GDP (EC 2025b). Its precautionary approach suggests the union is very concerned about the rapid increase in imports of low-priced EVs from China distorting the EU market and potentially hurting the auto industry, which is important to the economy and for employment.

The European Commission’s proposal has obtained the necessary support from EU member states to impose definitive countervailing duties on imports of BEVs from China (EC 2024f); however, according to EU procedures, if 15 member states and 65 per cent of the EU population vote against the proposal to impose tariffs, it will be put on hold. However, despite the vote in favour of special tariffs for EVs from China, the European Commission remains open to continue negotiations with China to explore an alternative to the tariffs. Both sides are keen to keep negotiating, indicating there is room for compromise.

Intense competition in a saturated Chinese market has led to a price war and forced EV manufacturers to pursue ever-lower production costs. Chinese EV manufacturers have made substantial investments in new production facilities, with additional capacity continuing to come onto the market. Alongside the rapid growth of EV production has been a slowdown in the Chinese economy. This has not only resulted in profit margins in the auto sector plummeting from 8.7 per cent in 2015 to 6.2 per cent in 2020, and to 4.3 per cent in 2024, according to the China Automobile Dealers Association (Wu 2024; Liu 2025), but also raised the need to find new markets to absorb these EVs. However, in response to perceptions of unfair competition, an increasing number of countries are raising tariff and non-tariff barriers against Chinese-made EVs. The US restrictions on Chinese EVs, software and components effectively bar nearly all Chinese EVs from entering the US market. Exports to other markets will be challenging for a variety of reasons. Thus, the European Union, the world’s second-biggest EV market, is highly attractive to China-based EV producers. An analysis by Rhodium (2024) indicates that even with the imposition of a 30 per cent duty, many Chinese EV models would still enjoy comfortable profit margins because of the substantial cost advantages they enjoy.

On the EU side, former WTO director-general Pascal Lamy (2024) said in an interview about the EU vote on Chinese EV tariffs that Europe could not remain the only big market open to subsidised Chinese EVs. However, opinion about imposing tariffs on Chinese-made EVs is widely divided. As shown in Table 6.2, while France supported the measure after previously pushing the European Union to start negotiations, 12 member countries abstained from the vote and its largest economy, Germany, together with four other member countries advocated against the step. It is crucial to emphasise Germany’s position on this matter. Whether it is for the benefit of its own automotive industry, the overall interests of the European Union or its own leadership, Germany must actively negotiate with and mediate on behalf of the European Union and member states and reach an agreement that is acceptable to both China and Europe. Germany must not stand in opposition to the majority of the European Union. Abstention or opposition—something smaller EU members may consider—is not an option for Germany. It cannot stand alone without undermining the credibility of its leadership and the independence and credibility of the European Union. Germany had spoken out against the proposal until the very end and had been one of those pushing for further negotiations with China.

Table 6.2: How EU member states voted on tariffs for Chinese-made battery electric vehicles

For (45.99% of EU population)	Against (22.65% of EU population)	Abstained (31.36% of EU population)
Bulgaria Denmark Estonia France Ireland Italy Latvia Lithuania Netherlands Poland	Germany Hungary Malta Slovakia Slovenia	Austria Belgium Croatia Cyprus Czechia Finland Greece Luxembourg Portugal Romania Spain Sweden

Source: Author’s compilation.

The European Union’s tariffs are not as severe as those implemented by the United States and Canada; it has not emulated the US approach to systematically shut out Chinese technology. Neither has it set tariffs so high as to block Chinese EVs from entering the EU market. As Rhodium (2024) suggests, to make the European market unattractive for Chinese EV exporters, duties would have to be as high as 40–50 per cent. They might have to be even higher for vertically integrated manufacturers such as BYD. The definitive tariff for BYD is 17 per cent, on top of the existing 10 per cent, which is far lower than the 45 per cent suggested. Even if duties were set high enough to erase the EU premium, BYD might decide that exporting to Europe still makes sense, given slowing demand and competitive pressures in the Chinese market.

The anti-subsidy tariffs imposed on Chinese-made EVs are comparable with previous tariffs. For example, the rates of definitive countervailing duties imposed by the European Commission on imports of certain organic coated steel (OCS) products originating in China differ between manufacturers. While OCS products from Union Steel China are levied at the lowest level of 13.7 per cent, OCS products from key manufacturers such as Ansteel, Baosteel and Tangshan Iron and Steel Group are levied at 26.8 per cent. All other manufacturers are targeted at the highest countervailing duty rate of 44.7 per cent (EC 2019). Imports of certain Chinese-made new or re-treaded pneumatic rubber tyres, used for buses or trucks with a load index exceeding 121, are levied at €27.69 per item for Chinese producers cooperating with both subsidy and anti-dumping investigations, but €57.28 per item for companies cooperating in the original anti-dumping investigation but not in the original subsidy investigation. Against the average Chinese import prices per item into the EU market of €136 in 2020, €156 in 2021 and €208 in 2022, these tariffs are translated into the rate of definitive countervailing duty up to 20.4 per cent and 42.1 per cent, respectively (EC 2025a). Compared with the highest countervailing duty of 44.7 per cent in the OCS case and 42.1 per cent in the pneumatic tyre case for all other non-cooperating companies, the highest definitive countervailing duty of 35.3 per cent in the EV case is low.

The EC decision makes sense because it avoids imposing higher costs on the EU economy. In 2023, the European Union essentially instituted a ban on internal combustion engines by 2035, when all new passenger cars and light vehicles registered in Europe must have zero tailpipe carbon emissions, compelling manufacturers to elevate the proportion of EVs they produce or incur penalties. But EU manufacturers alone will not be able to meet the demand for clean technologies (Zhang 2024). Unless Europe decides to delay its energy transition and scale back its EV ambitions, Chinese EVs may offer the lowest-cost and most efficient route to achieving its decarbonisation targets.

On the other hand, the European Commission cannot afford to take a laissez-faire approach, given that China’s state-sponsored competitors represent a threat to EU employment, productivity and economic security in general and its clean tech and automotive industries in particular. According to the simulations of the European Central Bank (ECB 2024), if subsidies to the Chinese EV industry were to follow a similar trajectory to those applied to the solar PV industry, EU domestic production of EVs would decline by 70 per cent and EU producers’ global market share would fall by 30 per cent. The application of additional tariffs reflects EU concerns about the influx of low-cost EVs into its market. By not setting tariffs at the high end of the suggested range and implementing differential rates according to the subsidy level and degree of cooperation of Chinese companies, the European Union is signalling that the purpose of the countervailing duties is not to stop imports of EVs from China, but to level the playing field so that EU manufacturers can compete on fair terms, stimulating innovation in the process (EC 2024b).

The European Union’s additional countervailing duties, however, hurt China’s EV exports badly. Using simulations from a trade model encompassing many countries and sectors, the Kiel Institute for the World Economy, the Austrian Institute of Economic Research and the Supply Chain Intelligence Institute Austria projected that the provisional countervailing duties of 21 per cent, effective on 4 July 2024, would reduce vehicle imports from China by 42 per cent. If the European Union were to reduce duties of 10 per cent imposed on BEVs to zero for WTO member countries with which it has no free-trade agreements, imports from China would only decrease by about 20 per cent. This scenario would enhance EU welfare more than the pure countervailing duty scenario, and the green transition would benefit from fairer trade (Felbermayr et al. 2024).

A 20 per cent reduction is not trivial. It is inevitable that China will appeal to the WTO to safeguard its interests. Indeed, China has filed a Multi-Party Interim Appeal Arbitration Arrangement within the WTO, requested WTO consultation over Canadian, EU and Turkish tariffs on EVs and has criticised the United States for abusing the review process of Section 301 tariffs and imposing further tariffs on Chinese-made EVs.

On 9 August 2024, China appealed to the WTO dispute-settlement mechanism over the European Union’s provisional countervailing measures on EVs. China’s Ministry of Commerce said that EU actions seriously violated WTO rules and undermined global cooperation on climate change. The ministry urged the European Union to change course and work with China to safeguard economic and trade cooperation and the stability of EV industrial and supply chains.

China’s Foreign Ministry spokesperson Lin Jian reacted to the Biden administration’s tariff hike in May 2024, saying:

Tariffs imposed by the first Trump administration on China have severely disrupted normal trade and economic exchanges between China and the US. The WTO has already ruled those tariffs [are] against WTO rules. Instead of ending those wrong practices, the US continues to politicise trade issues, abuse the so-called review process of Section 301 tariffs and plan tariff hikes. (Feng and Cheng 2024)

Based on the same arguments, China has filed a request for WTO consultation over Türkiye’s EV tariffs and a ruling on the tariffs Canada imposed on Chinese EVs and metal products.

It is not only the Chinese Government reacting to these trade measures to restrict imports; Chinese EV manufacturers are also taking legal action to challenge the European Union’s decision. In January 2025, Chinese EV makers BYD, Geely and SAIC teamed up with German maker BMW to file complaints in the Court of Justice of the European Union (Chilton 2025), hoping to overturn EU tariffs on Chinese EV imports into the EU market.

However, given the increasing number of countries raising tariffs and non-tariff barriers against Chinese-made EVs, whether China’s appeal can be settled within the WTO in the short term, and to China’s advantage, is an open question. Therefore, in seeking a long-term solution within the WTO, China will have to hope for an alternative settlement, such as a price undertaking, for its benefit.

Minimum pricing as an alternative

While the European Commission’s proposal received enough votes from EU member states to impose tariffs on Chinese-made EV imports for the next five years, 15 member countries abstained and its largest economy, Germany, spoke out against the plans until the very end and pushed for further negotiations with China. At the same time, China has pushed for a minimum import price that would avert the need for some of the extra tariffs. It is in the interests of both sides to come to a mutually beneficial agreement, meaning Europe can worry less about the influx of ultra-affordable subsidised EVs from China and Chinese automakers can fret less about tariffs and still profit overseas by honouring minimum pricing. Both sides are still open to negotiation.

Indeed, in August 2024, Chinese EV manufacturers SAIC, BYD and Geely offered to commit to certain prices when selling their vehicles in the European Union to avoid additional tariffs, and the CCCME submitted proposals on behalf of other Chinese automobile manufacturers. Tesla, which receives a separate tariff rate, did not participate in price commitments. The European Commission rejected the proposals.

Since the vote, technical teams from the European Commission and China have been negotiating on a flexible price commitment to avoid tariffs. The European Commission is reported to have rejected China’s latest proposal to sell imported EVs in Europe for no less than €30,000.

Pascal Lamy (2024) summed up the difficulty in striking an EU–China deal on EVs at Politico Competitiveness Week in October 2024: ‘Things like voluntary export restrictions or price undertakings are extremely difficult for cars.’ He said it would be challenging to reach an agreement due to the complexity of minimum price stipulations in the negotiations. Europe and China had agreed on a minimum price stipulation to replace tariffs on Chinese solar panels 10 years ago, but Europe was not happy about the outcome. The European Union lost its PV manufacturing capacities, with China now dominating the entire production chain: China’s share in all manufacturing stages of solar panels (such as polysilicon, ingots, wafers, cells and modules) exceeded 80 per cent in 2021 (IEA 2022) and 85 per cent or more thereafter. China’s share in the EU photovoltaic market now exceeds 90 per cent. This level of concentration in any global supply chain represents a considerable vulnerability.

One failure of the PV case was attributed to the adoption of extensive avoidance measures. The European Union does not want what happened with solar panels to be repeated with EVs.²  While minimum pricing has been used for uniform commodities such as PVs, an EV is a highly sophisticated product, with multiple models and configurations, resulting in substantial price differences between each one. The high number of product types entails a high risk of cross-compensation. Moreover, the EU tariffs do not apply to plug-in hybrid electric vehicles and conventional fuel vehicles produced overseas, the manufacturers of which may also produce and sell other products and services through the same sales channels and to the same customers. Combined with complicated corporate structures entailing hundreds of companies within each manufacturing group and complex global trade channels, the sheer number of different product models would render price undertakings unenforceable and impractical.

The European Commission is determined to go ahead with individual solutions for the auto industry. It has reportedly received several minimum price proposals from the CCCME to cover a number of EV makers. At the same time, it has received offers directly from multiple EV manufacturers and separately conducted price commitment negotiations with them, which the CCCME has opposed. The CCCME believes allowing parallel negotiations with individual manufacturers will weaken its negotiation capacity.

Issues with the variety of different vehicles suggest that focusing on a single price commitment will not work, so the European Commission has conducted separate price commitment negotiations with EV manufacturers and designated official representatives. In China, generally local governments rather than the central government provide incentives such as tax breaks, cheap land and direct procurement. This supportive role can enhance and amplify central government support. Indeed, different companies within a group establish production bases in different locations to produce different models and may receive different levels of subsidy, meaning setting a single tariff for each group is not justified. Regardless of whether the EU approach is consistent with WTO provisions, it should not apply one price to all models and manufacturers within one group. Prices must be differentiated across companies and locations within a group to avoid penalising companies that receive lower levels of subsidies.

The CCCME does not have the legal authority to punish manufacturers that do not stick to commitments made with the European Commission. Given its poor experience with China regarding PVs, and the greater risk of circumventing undertakings for EVs, it is easy to understand why the European Commission is negotiating separately with individual EV manufacturers. Such deals would be viewed as easier to monitor and enforce.

One solution could be an individually calculated minimum price for each vehicle maker and model type, depending on the size of the vehicle and its range. This could be coupled with import quotas. This option would apply to major EV manufacturers selling large numbers of EVs in the European Union. For other EV manufacturers, negotiations could determine whether to apply minimum prices or tariffs. Provided the CCCME can reach a deal with the European Commission for all EV manufacturers, the agreed minimum prices across models would be applied; otherwise, they would be subject to the EC tariffs decided on in October 2024.

Olof Gill, the European Commission’s trade spokesperson, in an interview with the Financial Times, said that ‘it’s not up to the Commission to be prescriptive about what that solution looks like’ (White et al. 2024). This implies that it is up to China to find a solution to the EV dispute that addresses the risk to EU industry that the European Commission’s investigation identified. It will then be up to China to decide how many concessions it is willing to make to obtain recognition from the European Union.

China’s car manufacturers going abroad: Issues for consideration

EU tariffs are imposed only on EVs imported from China and do not apply to those produced in other countries, plug-in hybrid EVs and conventional fuel vehicles. Therefore, brands such as BYD, NIO, Great Wall Motors and XPENG are moving to expand their presence in Europe and have begun exploring local production sites to circumvent the tariffs.

There is a demand for Chinese EVs abroad and Chinese car companies need time to absorb production capacity, so going global is one option. However, it should be emphasised that this will not be the same experience as resource companies investing overseas. China lacks endowments of oil and natural gas and must import large quantities of these resources to meet increasing domestic demand. Extraction and production of such natural resources are highly capital intensive and do not generate much employment. Therefore, resource companies investing overseas have little impact on job creation in China. And, by increasing global supply, they help lower prices of these resources—a win-win outcome for China and the globe (Zhang 2012).

There is another difference. When Japanese car companies built factories overseas in the 1980s, Japan was already facing increasing labour costs and labour supply shortages. By going abroad, Japanese car companies could expand their business while keeping production costs low, thus making their cars competitive on the global market. China now is in a very different position: it needs to create huge numbers of jobs at home.

In terms of providing domestic employment and tax revenue, automobile exports are superior to car companies building factories overseas. In an unfavourable geopolitical environment, therefore, it is crucial for China to make every effort to maintain good economic and trade relations with major consumer countries.

There are several issues to consider when Chinese automakers go global. Chinese car companies must recognise that when building factories overseas it will be difficult to replicate the virtuous cycle operating in China. Due to the size of the Chinese market, pushing down costs enables cars to be sold cheaper, thereby promoting further demand, increasing sales and forming a virtuous cycle. But when building factories overseas, policy barriers and regulations on investment, environmental protection and labour will affect the overseas production capacity of Chinese companies making EVs and batteries, meaning it will be difficult to reach the economies of scale that operate in China, and car prices will remain high.

Rules-of-origin or local content requirements are scheduled to be tightened. With the European Union having imposed duties on EVs from China, Chinese companies have begun setting up plants in Europe to avoid the duties. In July 2024, BYD announced it would invest US$1 billion in a plant in Türkiye, with a planned annual production of 150,000 vehicles, which is expected to begin operation in 2026. In April 2024, Chery signed a joint venture deal with Spanish EV Motors to produce cars in Catalonia, Spain. Some, although not all, EU countries have welcomed Chinese car manufacturers to build factories in their territory. However, the European Union has initiated a probe into the BYD manufacturing plant in Szeged, Hungary, arguing it is of minimal economic value to the union as a whole because it was built using Chinese labour and non–EU materials (Evertiq 2025a). It is therefore expected that the European Union will tighten rules-of-origin requirements for a minimum level of value that must be created in the European Union. Such moves would not necessarily exempt Chinese companies from duties. Chinese factories in Europe should learn from the lessons of past localisation, employ local talent to form the core strength of their workforce, give priority to local suppliers and integrate with local supply chains. Similar rules are likely to be tightened when the United States–Mexico–Canada Agreement (USMCA) is reviewed in July 2026.

A related and more crucial issue is technology transfer. EU Commissioner for Trade and Economic Security Maroš Šefčovič suggested ahead of an official visit to Beijing that technology transfers should be a condition of Chinese investment in Europe’s EV industry (Evertiq 2025b). The European Commission’s Director-General for Trade Sabine Weyand stated that Europe was ‘not interested in investments that are simple assembly businesses without added value and without technology transfer’ (Bounds et al. 2025; SCMP 2025). The commission has always insisted that the construction of factories must meet specific conditions, including technology transfer. China has used the strategy of technology swaps for market access since the early period of economic reform and opening, attracting much-needed advanced technologies to invest in the country. The West has long accused China of resorting to such a strategy to force Western companies to transfer technology, which it always denies. The European Union has not tried to hide that it is now emulating China’s practice. This suggests Chinese EV and battery manufacturers should be prepared for technology transfers if they invest in the European Union. Chinese EV investment in the United States would face the same issue. The Chinese Government may delay or pause approval for Chinese EV manufacturers to build plants in some regions amid fears of technology leaking into the European Union and North America. This issue must therefore be addressed at the company and country levels as well as between countries.

Moreover, decisions about whether to locate overseas should consider multilateral trade agreements. Some of China’s EV original equipment manufacturers are establishing a manufacturing presence in Mexico as a means of reaching Latin American markets and serving North American markets indirectly. However, this move could lead to more action on USMCA trade policies. When building a factory in Mexico, the focus should first be on the Mexican market, to see whether it is profitable to specialise there, rather than on exporting EVs to the United States. If manufacturers specialising in the Mexican market can make a profit there and find they can still export to the United States, this will be an additional dividend. Investing based on this logic will reduce risk. Chinese car companies investing overseas should also learn from Japanese companies, which united overseas.

Concentration of EV investment in a few European countries could trigger concerns in both China and the European Union. One country of concern is Hungary, which has so far attracted most of the EV-related investments by Chinese firms. This China-friendly country has been in conflict with the European Commission on a variety of issues of strategic importance. While the European Union has remained open to Chinese investments in the EV sector, any concentration of Chinese brands in a member country that frequently challenges the majority of EU member states and the European Commission could trigger a backlash against Chinese manufacturers within the broader European Union. Indeed, as mentioned, the European Union has initiated a probe into the BYD manufacturing plant in Hungary, which is expected to bring in investment of €4 billion and create 10,000 jobs (Evertiq 2025a). The investigation is to determine whether the plant receives government aid. If the BYD plant is found to benefit from unfair Chinese subsidies, under the European Commission’s rules, it could be forced to reduce capacity, repay subsidies or sell its assets. Another country of concern is Türkiye. Chinese vehicle manufacturers take advantage of a customs union agreement between Türkiye and the European Union. For example, BYD announced a plan to build a US$1-billion plant in Türkiye in July 2024; once in production, the factory would improve BYD’s access to the EU market. However, as discussed earlier, Türkiye has implemented severe tariffs and import licence restrictions on Chinese-made EVs. Given the Turkish Government’s unpredictable behaviour and disregard for the rules, it is possible the assets of Chinese investors could be nationalised or confiscated. The extent to which Chinese EV manufacturers benefit from Türkiye’s customs union status remains an open question.

If prices in foreign markets are higher than those in the domestic market, there will be no dumping, but it does not mean there are no subsidies. This is why the European Union is undertaking an investigation of Chinese EV subsidies, not an anti-dumping investigation. Moreover, the absence of global overcapacity does not mean that Europe and the United States will have to absorb the cars exported from China. The International Energy Agency (IEA 2024b) estimates that under the Stated Policies Scenario, global demand for EVs will reach 45 million units by 2030 and close to 65 million in 2035—up from about 14 million in 2023 and far above China’s production capacity. Insufficient production capacity in other developing countries does not mean there is a market to absorb all China’s exports, and these countries cannot sacrifice their future industrial development opportunities by not imposing restrictions on Chinese exports. Therefore, for mega-economies like China’s, the issue of overcapacity and its impact on China and other countries should not be underestimated. There are many complex factors involved here, which require objective and rational analysis and reflection.

Conclusions

Europe and the United States have enacted regulations and trade measures to restrict the imports of Chinese EVs. For example, the US Inflation Reduction Act imposes restrictions on the batteries and raw materials required for EV production. After one year of its subsidy investigation, the European Union imposed countervailing duties on EVs imported from China for five years. These actions are aimed at protecting local manufacturing industries and buying time for the construction of local supply chains. Although these measures protect the auto industries of Europe and North America in the short term, they could be counterproductive in the longer term.

However, given that Chinese EVs enjoy full industrial chain and cost advantages, the EU tariffs are unlikely to dent the expansion of Chinese EVs into Europe, and may not help promote the development of EVs there. Moreover, the European Union’s actions limit its consumers’ access to more cost-effective Chinese EV services and the means to achieve energy savings, emission reductions and carbon neutrality faster and at a lower cost.

China and Europe must compromise in their dispute over EV tariffs. Whether to continue tariffs or take on price commitments depends on stakeholders within the European Union. Because tariffs are set based on perceived, not material, injury, it will also depend on the extent to which China’s price commitments meet EU expectations and evaluations of achieving similar effects through the imposition of countervailing duties.

Overcapacity in China is related to its current industrial policies, which prohibit private enterprises from entering the high-end service industry. This leads to excess capital flow into manufacturing, including high energy-consuming and highly polluting industries, thus resulting in overcapacity in the manufacturing industry and generating large volumes of avoidable pollution emissions. This issue must be paid due consideration, otherwise other industries will repeat the same mistakes.

China’s appeal to the WTO over EU duties on its EVs was inevitable, but, facing new tariff and non-tariff barriers from more and more developed and developing countries, can China’s demands be effective or beneficial in the short term? Faced with the severe overcapacity of EVs, the fact that nearly all Chinese EVs are barred from entering the US market and exports to other markets will be challenging for a variety of reasons, only the EU market can help absorb China’s production capacity in the short term. So, which option, strong countermeasures or low-key negotiation, is more in line with China’s interests? Should some Chinese EV manufacturers be given a green light to separately negotiate with the European Union on price commitments or should all Chinese EV manufacturers suffer from tariffs? These are the issues that China must consider.

As the Draghi (2024) report highlights, policy objectives and the corresponding industrial policies and support must be coordinated. Setting extremely strict reduction targets or complete replacement of fuel vehicles by 2035 without fully considering the impact on competitiveness, industrial policies and other supports has put the European Union in a vulnerable position in terms of technological competition with some emerging countries. Unless the European Union amends its carbon dioxide standards regulation³ to increase flexibility and recalibrates the 2035 internal combustion engine target, in 2035, the sale of new fossil fuel vehicles will be banned. The development of EV vehicles within Europe is therefore inevitable, and more urgent than in the United States. The EU anti-subsidy tariffs are buying time for existing fuel vehicles. Depending on the speed of development and the competitiveness of EVs made in the European Union, it may have to compromise to accept China’s price commitments in the early stages of tariff enforcement.

The re-election of Donald Trump as US President could affect the direction and timeline of the dispute over EV tariffs between China and Europe. It could make conditions more unfavourable to China or it could help solve the problem faster. If it is the latter, it must be the European Union and China weighing the potential impact on each of Trump’s presidency, each lowering its expectations of the other and the European Union (China) moderately reducing (increasing) expectations about China’s price commitments and reaching a compromise.

If China and Europe cannot reach a compromise on the minimum price applicable to all Chinese EV exports, a hybrid alternative of implementing minimum prices for major EV manufacturers and imposing countervailing duties on others may be possible.

In terms of American interests, the United States must consider whether to continue to adhere to its current aggressive restrictions on Chinese EVs, which harm China and do not benefit the United States, or to implement policies that welcome Chinese car companies to build factories in the United States, hiring American workers and accelerating the development of US EVs and batteries.

If the United States chooses to embrace Chinese car companies investing in and building factories on its shores, it can consider increasing tariffs on or tightening the local content requirements of key goods that enter the United States through Mexico based on the importance of those goods when renewing or revising the USMCA. This will limit or block the use of this loophole, which would benefit US employment, taxation, cheaper and faster domestic production of EVs and cheaper prices for EVs early on. At the same time, it would help achieve stricter energy saving, climate and environmental protection goals. During his presidential campaign, Trump invited Chinese EV manufacturers to build factories and manufacture cars in the United States. It remains to be seen whether he will fulfil this promise. The America First Investment Policy released by the White House (2025) aims to protect US economic security and prevent investment threats from China. It not only further restricts Chinese investment in technology and infrastructure critical to the United States, but also restricts US investment in critical technology in China. A careful reading of all the provisions reveals this policy does not rule out Chinese EV manufacturers investing in the United States if they bring Chinese capital and technology with them. Whether this is the case remains to be seen. Chinese EV and battery manufacturers should be prepared for technology transfers if they invest in the United States and the European Union, although the Chinese Government may delay or pause approvals for such ventures amid fears of technology leaking into other countries.

Acknowledgements

An earlier version of this chapter was presented as a keynote address at the Inaugural Australia–China Energy Transition Forum on Electrifying Tomorrow, Sydney, August 2024; China Update 2024, The Australian National University, Canberra, November 2024; thirty-fourth annual meeting of the Chinese Economic Society of Australia, Adelaide, November 2024; China Spatial Economics 2024 Conference, Guangzhou, December 2024; and the Chinese Society for Electrical Engineering Forum on Smart Energy and Energy-Saving Tech Development, Beijing, December 2024; as well as at seminars at the National Development and Reform Commission, Beijing, January 2024, and Fudan University, Shanghai, December 2024. The author gratefully acknowledges financial support from the National Social Science Fund of China (23&ZD095, 20&ZD109). The author bears sole responsibility for any errors and omissions that remain.

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1. 1 The government support provided to industry includes direct subsidies and tax incentives for research and development, other tax incentives, below-market credit to SOEs, support through state investment funds (Government Guidance Funds) and ‘China-specific factors’, which include, most notably, below market-price land sales (DiPippo et al. 2022).

2. 2 In a speech on technology and politics at the Institute for Advanced Study in Princeton, New Jersey, on 9 April 2024, the European Commission’s then executive vice-president Margrethe Vestager contended:

   We saw the playbook for how China came to dominate the solar panel industry. First, attracting foreign investment into its large domestic market, usually requiring joint ventures. Second, acquiring the technology, and not always above board. Third, granting massive subsidies for domestic suppliers, while simultaneously and progressively closing the domestic market to foreign businesses. And fourth, exporting excess capacity to the rest of the world at low prices. The result is that nowadays, less than 3% of the solar panels installed in the EU are produced in Europe. We can’t afford to see what happened on solar panels, happening again on electric vehicles, wind or essential chips (EC 2024g).

3. 3 The CO2 Standards Regulation requires that carbon dioxide emissions from the sale of cars shall not exceed 93.6 grams per kilometre travelled. Any manufacturer that does not comply with the standards faces fines of up to €95 per excess gram, multiplied by the number of cars sold. The specific limit of 93.6 grams of carbon dioxide per kilometre came into effect in 2025 and will continue until 31 December 2029, dropping to 49.5 grams of carbon dioxide per kilometre between 2030 and 2034. This regulation requires a gradual increase in the registration of zero-emission vehicles. Sales of BEVs in the European Union rose continually until the beginning of 2024. In 2023, the share of new BEV sales reached 14.6 per cent. However, the growth curve required for compliance with the carbon dioxide standards by 2030 is steep. The registration share of electric cars in 2024 dropped by 1 percentage point to 13.6 per cent on the EU market. There was a risk that several EU auto manufacturers would not meet their targets and the 2025 passenger vehicle emission targets could result in significant penalties. To increase flexibility, the European Commission has proposed amending the CO2 Standards Regulation for cars and vans. This would allow manufacturers to meet the targets by averaging their performance over a three-year period (2025–27) and to offset any shortfalls in one or two years with excess achievements in the other year(s), while still aiming for the 2025 targets (EC 2025b).