Europe and China agree to talk about EV tariffs, a ‘first step’ to avoid a potential trade war between two of the world’s largest economies

The EU and China will start talks over the EV tariffs, following a video conference meeting between China Commerce Minister Wang Wentao and EU Trade Commissioner Valdis Dombrovskis on Saturday, according to a statement from the commerce ministry. The statement did not reveal any further details on when the discussions would start.

The announcement came during German Vice-Chancellor Robert Habeck’s three-day visit to China, the first by a senior European leader since the tariffs were unveiled earlier this month. In comments on Saturday, Habeck called the planned talks a “first step,” with many more needed to bring both sides together.

Wang met Habeck on Saturday and expressed Beijing’s displeasure to the German minister, according to a Chinese commerce ministry statement.

Chinese state media are already celebrating the announcement of talks, with state-owned media outlet Global Times calling it proof of Beijing’s “utmost sincerity” in trying to resolve trade disputes through negotiation.

The talks could be a welcome sign that both sides are open to discussions. “Both parties are taking an open attitude, which likely indicates that Chinese OEMs may be charged at a lower rate than previously announced,” Vincent Sun, an equity analyst at Morningstar, says. Sun also notes that the tariffs also affect China-made cars from European companies, like BMW.

Last October, Brussels launched an anti-subsidy probe into Chinese-made EVs to determine whether they benefit unfairly from Chinese state support.

Beijing, on the other hand, slammed the probe as “protectionist behavior,” and ignores China’s fiercely competitive EV sector.

Germany has criticized the EU’s decision to increase tariffs following the anti-subsidy probe (primarily backed by France). German chancellor Olaf Scholz has lobbied to minimize the scale of the tariffs, according to the Financial Times and Politico. German transport minister Volker Wissing also warned the increased tariff could risk a “trade war” with China.

The German Association of the Automotive Industry has also warned that the potential damage from the tariffs could be greater than the benefits.

Germany, the EU’s largest economy, has extensive trade relations with China. The Asian economy accounted for nearly a third of Germany’s auto industry sales last year. It was also Germany’s biggest trading partner for a decade until the U.S. overtook it this year.

A potential China-EU trade war

Both China and the EU have escalated their tit-for-tat trade threats in recent months since October’s anti-subsidy probe.

China first launched an anti-dumping probe on European brandy in January, then followed up with a probe into European pork last week.

Chinese automakers are also reportedly asking Beijing to impose retaliatory tariffs on European gas cars entering China.

For its part, the EU is currently investigating Chinese government support in industries like wind turbines and medical devices.

Europe’s announced EV tariffs are already threatening to change the behavior of China’s EV manufacturers. Over 80% of Chinese vehicle and industry chain companies are less confident about investing in Europe in the near future, according to a recent survey by the China Chamber of Commerce to the EU and the China Economic Information Service.