The EU is having a radical rethink of how to cope with the trade threat from Beijing — and its response has a very Chinese flavor to it.
Over the past years, EU trade policy has traditionally focused on building protective fortress walls, and last week’s decision to impose punitive tariffs on Chinese electric cars initially looked like another example of the classic defensive playbook in Brussels.
In a remarkable turn of events, however, the EU is now considering a next step that invites China’s electric vehicle (EV) makers inside the walls.
The big idea is to use the tariff threat to force Chinese carmakers to come to Europe to form joint ventures and share technology with their EU counterparts, according to conversations with four diplomats and two senior officials.
There are signs the formula is already attractive with EU carmakers. Franco-American-Italian carmaker Stellantis has formed a joint venture with China’s Leapmotor to start Europe operations in September. Spain’s EBRO-EV has teamed up with Chery — China’s fifth-largest automotive company — to develop EVs in Barcelona.
I want Chinese competition to lower prices.
Everyone wants cheap cars, but that’s not what this is about. This is about fair and competitive markets and products.
China heavily subsidizes their car industry. Actually everyone had been doing that, but currently China is doing it more.
Subsidies become a problem when they don’t serve to make necessities affordable in-country, but are used to boost sales in foreign countries, while hurting their local industry.
Now you might conclude that “why don’t we just subsidize or own manufacturers more as well so cars get as cheap as China’s?”
Well, where do you think the money for subsidies comes from? Taxes. So in the end, it’s just another scheme to make the general public pay for things that only part of the population needs, and it reduces pressure on manufacturers to innovate, leading to stale products. Which is a big reason why Western car companies are not competitive: the West has done exactly what China is doing now. We have subsidized the car industry massively in order to push or products into the global market. Those subsidies were considered worth it, because it created a trade surplus, effectively meaning wealth is transferred from the global market to mostly the car industry leaders, and a bit of it trickling down to workers as well.
After a while, the subsidies lead to corruption, inefficiency and lack of innovation, and the bubble bursts. That’s how you get histories like Detroit. Equivalents exist in almost any Western country.
A means to protect against subsidized products ruining the local markets is to impose tarrifs. The US has many of those, not only against China, but also against EU companies, especially in the car market. See chicken tax. American car manufacturers were so far behind after decades of heavy subsidies they couldn’t even compete with European cars ( and apparently still can’t, given that the chicken tax and similar tariffs still exist). In the end, tariffs run the same risk as subsidies: over time, a protected market means the industry can get lazy and keep selling the same, because competition is forced out of the market. Tariffs and subsidies are never a viable long term solution. Both can only serve strategic purposes: either providing actual essentials to ones population or nurture change ( eg subsidized regenerative energy build up) that only exist for a limited time. Tarrifs can be used to protect strategically important industry: e.g. military or technological cutting edge tech where you don’t mind paying extra for the privilege of maintaining in-country know how and manufacturing abilities.
The reason why subsidies in the US lead to corruption and subsidies in China lead to innovation has nothing to do with how long the industries have been subsidized.
The US subsidizes industries to bailout corporate executives that made bad decisions.
China subsidizes workers who innovate towards ends that we know we need to be working towards as a species. Such as building electric vehicles to address climate change.
Even if the economy worked how you’re suggesting addressing climate change would be a worthy investment. It’s an end that has been obvious that we should be investing in for decades. The US refuses to do it because it would take power out of the hands of the corporate executives who they are busy bailing out.
Well, where do you think the money for subsidies comes from? Taxes.
This is logically incoherent. Money doesn’t exist in nature my dude.
Take out a physical dollar and look at it… what does it say on it? If you do this you will find it says it’s a note from the federal reserve.
Every US dollar in existence was originally spent into the economy by the federal reserve which is managed by the US government. That is a matter of fact. To suggest money comes from taxes is incoherent. Taxes are how the government destroys money not how it creates money.
Now maybe to control inflation we should take money out of the economy through taxes. Especially in places where money is being mismanaged… if we do, the aforementioned corporate executives seem to be at the top of the list of places where large amounts of money is being mismanaged. Given that in the context of the automotive industry China is managing their wealth better than the US.
You’re not entirely correct: China had heavily subsidized their EV industry.
The purchase incentive is gone. Many tax incentives are gone. Tax benefits for setting up factories are gone (closed ICE factories are being decommissioned rather than sold).
If you had said that in 2019, you’d be entirely correct. Today? Things are different.
You’re correct. I got caught up in explaining the overall concept. 😅
My personal interpretation is that the Chinese companies are now feeling the competitive pressure after their golden years and are scrambling to get their products on larger markets, while said market ( better affordable EV) still promises some margins.
This is the definition of capitalism.
That’s what I don’t understand. They want me to save the world with an EV, and at the same time make it so expensive I can’t afford it.
Everybody wants to save the world. They just want it done their way.
So the alternative for millions of people will be universal income if they can’t work anymore. It’s still a good alternative but it won’t sell cars and I’m not sure the economy will be happy about it.
Politicians want to save the economy before they want to save the planet. It’s stupid but that’s in the rules for rulers and how the incentives for the financial system works.
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For fucks sake China sells their cars for export at a 40% markup compared to the domestic market. At-cost my ass
Are we ignoring how China’s top EU exports are made up by MG (a British brand) and Volvo (a Swedish brand)? How Mercedez-Benz partnered with BYD to release the hybrid GLC? How Stellantis partnered with Leapmotor?
Chinese carmakers are already sharing technology with Europe. All this tariff serves to do is push them to sell hybrids, which are excluded from the tariff.
Volvo cars is not a Swedish brand in any way other than marketing now.
So Europe went from suggesting decoupling from China to de-risking and now this?
This does not negate the tariffs or the decoupling from a building relationship with China, it halts a dependency on China without significant sacrifice from the EU.
It’s the tactic that makes most sense right now.
And it sounds like literally what China did to Western companies wanting to set up shop in China. Seems like turnabout is fair play.
It would be the same if China has already caught up enough to have some know-how to transfer. Has it?
I doubt Germany (or anywhere in Western Europe) needs knowledge transfer on technology but if China set up a factory in the EU, it’d probably be in an Eastern European country that could probably use a little.
In certain areas it has practical know-how we don’t. CATL is a good example. Not just their sodium-ion batteries, but their production processes in general. We might be able to readily reproduce their battery chemistries in a lab but that’s not the same as having an industrial production process and the experience from ironing out all the kinks that feed back into basic research. With a joint venture, you can tap into that stuff.
If we had invested as heavily in the tech as they did we probably would be ahead right now but we didn’t so we aren’t. If they had invested as much into fusion as we did – oh wait they did. They’re behind, Max Planck is currently looking into the details of building a commercially viable reactor in the early 2030s, they’re confident to have the plasma physics down now it’s about stuff like “do we use a cheap material for the diverters and replace them often or do we develop/use something fancy”, that is, about actual operational costs.
You can’t decouple from 15% of the world’s population/one of the most powerful economies in the world. That was always chest pounding and frankly it was unproductive.
The “fortress” mentality described in the article does not work in the long run unless you are dealing with smaller (and frankly, poorer) countries. And even then they can prove resilient, especially if you can’t get enough other countries on board.
Yes. Europe is falling behind and willing to try anything. Bad times ahead.
This is the best summary I could come up with:
Over the past years, EU trade policy has traditionally focused on building protective fortress walls, and last week’s decision to impose punitive tariffs on Chinese electric cars initially looked like another example of the classic defensive playbook in Brussels.
The big idea is to use the tariff threat to force Chinese carmakers to come to Europe to form joint ventures and share technology with their EU counterparts, according to conversations with four diplomats and two senior officials.
So, faced with the need to catch up, Europe’s tariff and joint venture plan is “an attempt to give China a taste of its own medicine,” said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy (ECIPE), a think tank.
In Germany, some of whose companies still make good profits in China and have the ear of the country’s politicians, the fear of a trade war prompted Chancellor Olaf Scholz to break ranks and openly question the EU’s electric vehicle subsidy probe.
And the mood among the EU diplomats and officials that POLITICO spoke to was not one of Trumpian protectionist gloating about the decision to impose tariffs, but rather one of regret and alarm that this may well be a last resort — with European governments’ balance sheets so stretched they simply can’t match China’s subsidies.
Faced with massive pressure from Berlin to avoid a trade war, the joint venture plan to de-escalate the fight while securing some wins for Europe is quickly gaining traction in Brussels.
The original article contains 1,731 words, the summary contains 247 words. Saved 86%. I’m a bot and I’m open source!
I’m okay with buying chinese cars. I don’t care about the shitty, overpriced european car makers.
