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The EU’s embrace of protectionism will only result in a ‘lose-lose’ situation

In the long run, it will not be able to stop the rise of China’s EV cars, nor boost the competitiveness of European car makers

By NewsChina Updated Dec.1

The European Commission officially launched an anti-subsidy investigation on imports of Chinese electric vehicles to the European Union on October 4, which analysts believe could lead to increased tariffs on imports from China.  

The move comes in response to the apparent unstoppable rise of Chinese electric vehicle (EV) makers. In the past years, Chinese car makers’ market share in the European EV market has risen rapidly. According to the International Energy Agency, the share of EVs manufactured in China and sold in Europe increased to 16 percent in 2022, up from about 11 percent in 2021. UBS Group estimated that Western automakers may lose one-fifth of their global market due to the rise of more affordable Chinese EVs, slumping from 81 percent to 58 percent by 2030. This has caused significant concern in Europe regarding China’s competitive advantage in the new energy vehicle sector.  

The fundamental purpose of the EU’s anti-subsidy investigation is to impose punitive tariffs on imports of Chinese new energy vehicles, thereby weakening China’s competitiveness in this sector. But the EU’s protectionist policies will not be able to boost the competitiveness of its new energy vehicle industry.  

The success of Chinese EV makers does not come from alleged subsidies from the Chinese government, but from a more competitive domestic market, a more proactive approach in the EV market and more aggressive expenditure on new technologies. In the short term, the EU’s protectionist policies would no doubt lead to a substantial rise in the costs of Chinese EVs in the European market.  

But in the long run, it will not be able to stop the rise of China’s EV cars, nor boost the competitiveness of European car makers.  

According to the World Trade Organization, the EU has launched more than 500 antidumping and anti-subsidy investigations since 1995, making it the third-most active initiator of such investigations among WTO members, trailing only behind the US and India. The EU’s recent probe against Chinese EV makers indicates that the EU is increasingly embracing protectionism. 

Due to the combined impacts of the growing rivalry between China and the US, the global pandemic, the Ukraine war and the resulting energy crises, and the global economic slowdown, the European public has exhibited a growing fortress mentality, which has led to a more complex and conflicting attitude toward China.  

In the meantime, the EU has increasingly adopted a more conservative approach and resorted to intervention in its trade-related industrial policy. In 2021, the European Commission released its Open, Sustainable, and Assertive Trade Policy, which explicitly stated that the bloc will develop tools to defend its interests. The EU is also increasingly linking economic and security issues.  

The EU’s embrace of protectionism reflects an ongoing transformation of an international order based on market competition to one dominated by great power competition. While market competition emphasizes a “win-win” scenario, great power competition is more of a “zero-sum” game, if not a “negative-sum” one. As China is expected to adopt retaliatory measures if the EU’s anti-subsidy probes lead to more tariffs on Chinese products, trade relations between the EU and China may become a “lose-lose” game.