Decoding China: Beijing bracing for trade war on all fronts

"We are going through a difficult time," French President Emmanuel Macron lamented at the Paris Motor Show, which began on Monday, October 14. "The European market is shrinking and competition from China is very strong."   

In times like these, he said, it is necessary to take measures to protect domestic firms in order to implement fair rules.

"If certain manufacturers in China receive subsidies, it is normal to introduce tariffs to compensate for this. Otherwise, you are not playing by fair rules. And we support that," said Macron.

At the beginning of October, the European Commission decided to introduce additional tariffs on electric cars manufactured in China.

While France, Italy, the Netherlands and many other EU members supported the move, Germany voted against it.

Even though Brussels and Beijing are still negotiating and hoping to settle the issue amicably, the first salvos in the trade war have already been fired.

China last week slapped provisional tariffs on brandy imported from the European Union, and it's also conducting an anti-subsidy probe targeting the bloc's dairy sector.

'Tariffs are poison'

The "Made in China" e-car has the potential to trigger a full-on trade war between China and the EU, and it seems businesses on both sides are less than thrilled about this possibility. 

All German carmakers, including BMW, are against the punitive measures on imported electric vehicles.

"BMW is part of a global network of production plants for vehicles, but also of parts and suppliers. These parts and vehicles must be traded freely," senior BMW executive Martin Boluk said at the Sino-German Automotive Conference in Munich on Tuesday. "BMW believes in free trade as a fundamental principle and does not support EU tariffs."

Ferdinand Dudenhöffer, director of Center for Automotive Research (CAR) in the German city of Bochum, said Germany needs China as a technology supplier.

He stressed that the times have changed and it is no longer like the old days when German car manufacturers transferred their technologies to China. "That's why cooperation between China and Germany is even more important. And the tariffs are poison."

US and Canada emerge as pioneers of tariffs on e-cars

The Chinese are perplexed by the tariffs. Their officials say the measures are politically motivated and not in line with globalization.

They believe the EU is following the lead of the US and Canada, which have already imposed 100% additional duties on imports of Chinese e-cars.

The tariffs come against the backdrop of deteriorating political and economic ties between China and the US due to the current geopolitical tensions. And the situation is unlikely to change before the US presidential elections on November 5.

Some officials in Beijing are already preparing scenarios for the possible return of former President Donald Trump to the White House.

During his first term in office, Trump demonstrated his willingness to experiment with punitive tariffs against the rest of the world.

Trade relations with the EU are already getting increasingly strained.

The Chinese side claim the European Commission is demanding disclosure on what the Chinese consider trade secrets, such as technical details about battery manufacturing.

They also complain that Brussels keeps demanding more information despite already receiving several dozen terabytes (TB) of data from the manufacturers.

Also, according to Beijing, there was a lack of transparency in the selection of European car manufacturers for the purpose of cost comparison. For instance, no German carmaker was among those selected, only car manufacturers from Italy and France, which were having great difficulty surviving on the market, were considered, the Chinese say.

Catching up takes long time

The Chinese negotiators also indicated that Tesla, a US manufacturer that operates a mega factory in Shanghai, had been exempted from the tariffs.

Tesla is the biggest exporter of "Made in China" e-cars to Europe, they note, adding that the EU decision clearly favors Tesla over its Chinese competitors — as well as its German competitors.

"We have to be careful not to tell such Wild West stories that are being spread in America," warned Dudenhöffer of the Bochum-based Center for Automotive Research.

He said that there are unfounded rumors such as that "vehicles made in China could paralyze traffic in the US."

"It's just stupid and leads us down the wrong path," said the automotive expert.

Dudenhöffer also stressed that German firms will not be able to catch up overnight with Chinese companies such as CATL or SVOLT, which have pioneered battery technology.

Furthermore, they will not be able to catch up "in the long term either," he said.

"That's why we need cooperation. We also need to learn from China."

Chinese companies are now looking for a way out to continue selling their electric cars on the European market. China's carmaker Geely, for example, wants to set up plants in the EU..

"We do not yet have any production facilities for electric vehicles in Europe," said Frank Klaas, head of communications at Geely Europe. "But we are open to production facilities. We want to produce where we sell. In the context of discussions about tariffs and politically imposed restrictions, we will certainly consider this."

This article was originally written in German.

"Decoding China" is a DW series that examines Chinese positions and arguments on current international issues from a critical German and European perspective.