EU risks trade war with China over electric vehicles

Anti-subsidy probe puts the EU on course for a battery battle with Beijing.
In the midst of an invasion by Chinese electric cars, European Commission President Ursula von der Leyen launched an anti-subsidy investigation Wednesday against Chinese imports. It's a step that risks snowballing into a trade war that could make a tussle over solar panels with Beijing a decade ago look like a tea party.
"Global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies,” von der Leyen said in her annual State of the Union address. “This is distorting our market.”
The stakes couldn't be higher: China's massive investments have established it as the dominant maker of the battery technology that powers clean cars. Global sales of electric vehicles are forecast to grow by nearly a third in 2023 alone to nearly more than 14 million units — worth $560 billion — and without fair competition the EU sees its industry losing out.
With China already controlling 60 percent of global battery production, Brussels fears that, without countermeasures, Chinese companies will gain a stranglehold on EV markets just as major western economies on both sides of the Atlantic commit to tackling pollution by phasing out sales of traditional combustion engine vehicles.
A similar conversation is taking place in the United States, where the White House is grappling with demands to make sure that Chinese technology isn’t made eligible for massive subsidies aimed at kick-starting an EV industry under the Inflation Reduction Act. That’s a problem, since even the likes of Ford license battery technology from China’s CATL, which is by far the world’s largest cell-maker and has two plants in Europe.
Von der Leyen’s announcement came less than a week after her meeting with Chinese Premier Li Qiang in New Delhi, where the No.2 Chinese official urged her to “uphold the principles of market economy and fair competition, keep its trade and investment markets open, and provide a fair, transparent and non-discriminatory environment for Chinese enterprises,” according to the Chinese readout.
Tradecraft
The announcement gives the EU Trade Commissioner Valdis Dombrovskis key leverage in his negotiations with his Chinese counterparts when he visits Beijing on September 25. Dombrovskis has already indicated he expects China to lower trade barriers for European exports, to help fix a yawning bilateral trade deficit.
The meeting is part of the buildup to an EU-China summit expected to happen later this year.
The Commission launched the investigation on its own initiative, according to a European Commission spokesperson, and not in response to a complaint. That makes it a political choice by the EU executive, with the attendant political risks.
After the European Commission officially starts the anti-subsidy investigation, it’s up to its trade department to prove that China is subsidizing companies exporting the electric vehicles to the EU and that this is causing injury to the European industry.

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