Who determines the EU's trade relationship with China?

If the EU expects that the new import tariffs on Chinese electric cars will be well received by the bloc's US allies, perhaps the situation needs to be rethought. This is what they write in their analysis in Euractiv Leon de Graaf, sustainability expert at #SustainablePublicAffairs and Alicia García-Herrero, senior fellow at the Bruegel think tank.

On October 29, the EU finally adopted additional tariffs on imports of Chinese electric vehicles of up to 35% on top of existing regulations of 10%. In response, it would make sense for Chinese EV manufacturers to circumvent these tariffs by investing directly in Europe. In addition, the Chinese government can use investments to exert influence on an EU member country - this is the so-called "One Belt, One Road 2.0" initiative.

However, the exact opposite appears to be happening, with the Chinese government instructing its electric vehicle and battery manufacturers to reduce or even stop investment in Europe. This was made clear by Dongfeng Motor Group's announcement that it was halting investment in car manufacturing in Italy, as well as Cherry Automobile's postponed plans in Spain.

Why would Beijing do this?

Official reasons for Dongfeng's decision appear to be Italy's previous support for European import tariffs and Beijing's concern that greater production capacity risks creating overcapacity in the EU's slow-growing EV market.

However, the Chinese government may also be expecting something that European leaders themselves do not yet realize, namely that the EU is likely to be strongly pushed by the new US administration to be even tougher on Chinese EVs than it is now .

The US has already imposed 100% tariffs on imports of Chinese electric vehicles. In addition to the prohibitive tariffs, America plans to ban Chinese software and hardware from all cars that drive on the country's roads.

Why is the US administration doing this? The reason is one - many fear that Chinese vehicles will soon become a threat to national security. In addition, the US has no intention of accepting green investment from China to produce electric cars, let alone offering Inflationary Reduction Act (IRA) subsidies, as some European countries are doing to attract Chinese investment.

In other words, there is indeed a long way to go to compare the EU's measures with those of the US. This raises the question of how much the US administration can push the EU to do more on the case. There is an obvious case where the Biden administration has pushed the EU to align regulation, namely on export controls for semiconductor-related products (lithography equipment for advanced chips in the case of the Netherlands).

In addition to semiconductors, the US has pushed for the EU to impose restrictions in other areas, such as 5G and telecommunications infrastructure, so a similar move for electric cars cannot be ruled out.

Are electric vehicles a strategic sector?

While EVs may be seen as just cars by many, their role in advancing artificial intelligence through autonomous driving, energy system flexibility as a mobile home battery, and other strategic parts of our future economy will soon be apparent to all.

So while everyone eagerly awaits the US presidential election next week, the next US president, whether Democrat or Republican, will be tough on China. And for the above reasons, it may only be a matter of time before the next US president forces his key allies to help exercise even more restraint in relations with China.

Beijing's directive to reduce investment in electric cars in Europe may so far be perceived as counterintuitive retaliation, but it may ultimately make sense in such a scenario.

It's all part of a larger geopolitical development in which the US is forcing its key allies to increasingly ignore China. In most cases – certainly in the EU, Japan and South Korea – the direction is the same as in the US, although the speed may be different.