Lack of consensus in EU tariff vote shows Beijing still has sway, Plus telecom firms struggle to lay cable as China asserts power over South China Sea -- China Boss News 10.11.24
Newsletter
What happened
The European Union voted to impose tariffs of up to 45% on electric vehicles from China, risking an all-out trade war between Brussels and Beijing.
Although ten member states voted to empower the European Commission to implement the duties for five years, there was a glaring lack of consensus. Five countries, including Germany and Hungary, voted against the measures, while twelve countries abstained.
The impasse forced the European Commission to intervene and push forward its proposal.
Brussels’ decision follows an investigation by the European Commission into 21 groups of Chinese producers that found Chinese subsidies in battery-powered electric vehicles "everywhere," covering entire supply chains from raw material mining to car manufacturing.
Companies like BYD that cooperated with investigators will receive a 17.4% levy rate. In contrast, companies that did not cooperate, like SAIC, a Chinese state-owned automobile manufacturer headquartered in Shanghai, face a whopping 38.1% rate. Both rates will be added to the current import duty of 10%.
On Tuesday, the Chinese Commerce Ministry announced that China had escalated the trade conflict by implementing "temporary dumping measures" against European brandy, which will mainly impact French luxury Cognac brands.
Politico described the decision as a "swipe at France" for supporting the EU's investigation into Chinese EV subsidies and voting in favor of the tariffs.
France's Junior Trade Minister condemned the measures, calling them unjustified and against President Xi's promise not to impose duties.
"We are very disappointed by this announcement, which goes against the commitment made by President Xi during his visit to France. I will soon be attending the G20 Summit in Brasília, where I will be taking the opportunity to hold a dialogue with my Chinese counterpart. I'm ready to go to China to put forward our positions," Sophie Primas told news staff.
Why it matters
Europe's top influencer
While Brussels' victory in obtaining the votes needed to impose tariffs on Chinese electric vehicle manufacturers dominated the headlines, the fact that twelve member states abstained from voting - which is two more than voted in favor of the tariffs - exposed just how much sway China holds in Europe.
The abstention of so many countries underscores the prickly problem of how government leaders - not just CEOs - are caught between Western norms and economic needs and shows how fearful they are of angering both Beijing and the Commission.
It also speaks to how Berlin's influence in Europe is "waning" since German Chancellor Olaf Scholz's 11th-hour push to bring more trade ministers to the "nay" side of the vote mostly failed.
This is remarkable as it contrasts sharply with more than a decade ago when Germany successfully negotiated minimum prices for solar panels instead of tariffs under Angela Merkel's leadership.
"[A] burst of phone calls over a weekend in July 2013 between China, then German Chancellor Angela Merkel and Jose Manuel Barroso, European Commission president at the time, killed a proposal to put EU tariffs on [Chinese] solar panels. Instead, a deal on minimum prices was reached," Reuters staff recalled.
Chancellor Merkel's exit has left Germany grappling with economic challenges, a disorganized coalition government, and a shift towards prioritizing domestic politics over EU affairs.
European officials, however, do not see a diminished Germany as a good thing.
The split within Germany's coalition government - I wrote about that here:
- has especially frustrated EU diplomats, who see it as detrimental to the bloc's unity.
Even so, last week's vote in Brussels was terribly crucial for the European Commission and its president, Ursula von der Leyen.
The stakes are high for both. The Commission must respond to the threat against the EU car industry, and von der Leyen faced her "moment of truth" after a multi-year push to change Europe's approach to China.
In the latter’s view, China strategically uses unfair trade practices, like industrial subsidies, in foreign policy to establish a foothold for its rise to the top of the world order.
A "landmark speech" in March 2023 outlined von der Leyen's position and set the stage for the Commission's unprecedented probe into China's business practices.
Six months later, von der Leyen demonstrated she wasn't just puffing hot air when she announced the opening of an official investigation into Chinese carmakers at a parliamentary session in Strasbourg.
"Global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies. This is distorting our market. As we do not accept this from the inside, we do not accept this from the outside," von der Leyen declared. Watch here.
Wrangling for control
Von der Leyen is keenly aware that the investigation, which, according to Euronews, "saw EU officials visiting over 100 carmaking sites across China," and the vote on tariffs increases the risk of retaliation from Beijing.
However, the Commission views the situation as a threat of "foreseeable and imminent injury," justifying the imposition of measures to address the pricing gap and protect EU producers.
At any rate, retaking control over European trade policy from Beijing and German automakers—who vigorously advocated against the tariffs—is reason enough to risk a trade war.
Indeed, in the battle for control over imports, Brussels has much more to lose than China—for what is a trade bloc without the authority to enforce its trade rules?
In that respect, the vote "mark[ed] a pivotal moment for the future of EU-China relations," as Janka Oertel, senior policy fellow at the European Council on Foreign Relations (ECFR), told Euronews.
"It serves as a litmus test for whether the rules-based solutions proposed by Brussels to strengthen Europe's negotiating position with China will be undermined at the last minute by member state politics," she said.
The question now before us, however, is whether the ten votes in the Commission's favor—Italy, France, Poland, Netherlands, Ireland, Latvia, Lithuania, Estonia, Bulgaria, and Denmark, where Italy's vote was uncertain up to the end—pass that test.
Or whether the more significant number of 'Against' states - Germany, Hungary, Malta, Slovenia, and Slovakia - taken together with the 'Abstain' states - Belgium, Croatia, Czech Republic, Greece, Spain, Cyprus, Luxembourg, Austria, Portugal, Romania, Sweden, and Finland, will be seen as China's power over Brussels’ mandate.
Financial Times' Senior Trade Writer Alan Beattie also pointed out the painful truth of the Commission's feeble grip on its foreign economic policy agenda.
"Although it won't enjoy the tariffs, China must at least be eyeing this public display of disarray with satisfaction, like a predatory cat watching a gang of disorganized mice running around crashing into each other and falling over," he said.
He's right. The chaotic, too-close-for-comfort outcome of a vote to strengthen and protect Europe's markets will not be seen as a loss in Xi Jinping's new, more assertive China.
Beijing, busy as it is deploying new tactics to remake the world in its image, will take Europe's response as confirmation that an opportunity awaits to serve Russia in Ukraine or hammer away at Taiwan's sovereignty without repercussions.
This Week's China News
The Big Story in China Business
TELECOM FIRMS STRUGGLE TO LAY CABLE AMID SOUTH CHINA SEA TENSIONS: China's assertion of control over the South China Sea has made it harder for cable companies to operate in the region without Chinese approval, the Washington Post reports.
Delays in cable repairs and construction have been reported due to issues obtaining permits from China. Some companies are avoiding the South China Sea altogether to avoid becoming ensnared in rising tensions.
Kelvan Firman, chief executive of Indonesian company Super Sistem, told WaPo that "China's determination to consolidate control over the South China Sea has made the waterway a 'wild card' for cable companies."
"The problem is nobody knows how far [Chinese maritime forces] will go. Who wants to take that risk?" he said.
Keep reading with a 7-day free trial
Subscribe to China Boss News to keep reading this post and get 7 days of free access to the full post archives.