Every 10 years or so, it seems, another industry is nominated to be the new primary combat theatre for trade wars involving China. (This is distinct from eternal wars of attrition such as the steel sector.) In the 2000s, it was clothes and shoes. In the 2010s, it was solar panels. The 2020s looked set to be the decade of wrangling over semiconductors, but electric vehicles are, as it were, coming up fast on the outside. Two weeks ago, the EU broke into the open and threatened anti-subsidy duties on imports of EVs from China. European Commission president Ursula von der Leyen warned against repeating the experience of solar cells, where Chinese producers overtook an early European lead to dominate the EU and indeed the global market. But the EU’s problem with EVs has not primarily been a naive opening of the European market.  

These poorly targeted and possibly counterproductive trade restrictions, which risk holding back the green transition by making EVs more expensive, are not a substitute for creating an environment in which European companies can compete. In reality, even if anti-subsidy duties are granted, they probably won’t make much difference to competition between Chinese and European car companies. The single biggest source of made-in-China EV imports are the Tesla cars made in the US company’s plant in Shanghai province, not the indigenous Chinese brands, which have relatively small footholds. If the commission genuinely wanted to give European industry breathing space, it would have gone for a “safeguard measure”, which gives temporary protection against all imports, rather than singling out China. Under EU rules, it’s hard to prove massive effects from trade-distorting subsidies, certainly compared with complaints of unfair pricing (anti-dumping).  

So anti-subsidy tariffs on Chinese EVs will probably only amount to about 10 per cent. Although there is some leeway to differentiate between producers, duties are also likely to hit imports of EVs made in China by European companies such as Volkswagen. It was the commission itself, under pressure from the French government, that initiated the EV investigation. The German car companies in particular, aware of the potential for damage to their exports and for retaliation in the Chinese market, aren’t enthusiastic. And in one of the most telling issues, it’s only subsidies over the past year that are counted when calculating trade distortions. China has established a lead in EV manufacture — as in other green tech industries — by pouring in money for well over a decade in various forms, including subsidised credit, land and industrial inputs.  

Now, it’s certainly true that the EU will always struggle to match that scale and type of government support. Member states, constrained by rules on state aid, have generally offered consumer subsidies to encourage EV adoption no matter where they were made. By contrast, according to a report by the think-tank CSIS, more than a third of China’s government subsidy to EVs between 2009 and 2017 went to support domestic production, including research and development. (The US squared this circle in Joe Biden’s Inflation Reduction Act via consumer tax breaks for EV buyers with domestic-content provisions that very likely break World Trade Organization law.) However, even within these constraints, there has been a chronic lack of imagination and investment in the EU. European carmakers started with the massive advantages of globally famous brands and experience in building supply chains. But while China was establishing its EV base from the 2010s onwards and starting to capture the EU market in EV batteries, including through foreign direct investment in Europe, the German car industry was more focused on cheating emission tests in the Dieselgate scandal, with the help of weak regulators, and lobbying for delaying official targets for ending the sales of internal combustion cars. Despite negative government bond yields during the 2010s offering a perfect incentive to borrow and upgrade Germany’s ageing infrastructure, Angela Merkel’s government was bizarrely obsessed with attaining the “schwarze Null” (black zero), a balanced public budget. Germany’s car industry doesn’t lack government backing. Volkswagen in particular is a partly state-owned enterprise through the stake owned by the German state of Lower Saxony. It has an outsize impact on German and EU regulatory and trade policy.  

And yet while it did expand EV production in China, VW and the rest of the sector failed to change the paradigm at home, and governments did not press them. This is not a counsel of despair. The European automotive industry retains great capacity for innovation. Chinese marques targeting the EU such as BYD are largely aiming at the low-value part of the market, leaving plenty of room at the higher end. European and global EV markets are expanding faster than China alone can supply them. The main issue here isn’t the unfairness of emerging Chinese competition. It’s the time it’s taken that competition to prod Europe’s car industry and its complacent governments into action. The trade restrictions being proposed by the commission aren’t a cure so much as a symptom. The fix for Europe’s malady lies within itself.