The implementation of tariffs on electric vehicles (EVs) imported from China has led to significant shifts in international trade flows and supply chain configurations. Countries worldwide have adopted varying levels of tariffs, prompting responses from manufacturers and altering market dynamics.
United States and Canada Take Firm Stance
The United States recently imposed a 100% tariff on Chinese EV imports, up from the previous 27.5% rate set in 2018. This move follows a period of growth in Chinese EV imports to the U.S., which increased from $7.2 million in 2018 to $388.8 million in 2023, representing 2% of U.S. EV imports. Canada has mirrored the U.S. approach with a 100% tariff on Chinese EVs, signaling a coordinated North American response to Chinese EV imports.
Brazil’s Graduated Tariffs Approach
Brazil has implemented a tiered tariff system. Starting at 10% in January and rising to 18% in July, Brazil’s tariffs will reach 35% by July 2026 and apply to all electric and hybrid vehicles regardless of origin. This policy has led to a surge in EV imports, with Brazil recording its highest ever inventory of electric and hybrid vehicles in August. Between January and August, 72,476 vehicles were imported into Brazil from China, an increase of 339% by 2023.
European Union’s Nuanced Strategy
The European Union has taken a more complex approach, proposing tariffs of 17% to 38% on Chinese automakers. This is in addition to the existing 10% tariff on car imports from China. The EU’s decision stems from concerns about fair competition and the sustainability of its domestic EV industry.
The European Commission has stated that “the EU’s green transition cannot be based on unfair imports at the expense of EU industry”. However, it has also sought to allay fears of an escalating trade war, stressing that the aim is not to close the EU market to imports, but to ensure a level playing field.
Provisional tariffs were imposed on July 4, with a vote on permanent tariffs scheduled for the end of October. If passed, the tariffs would remain in place for five years. However, there are concerns that some EU member states, such as Spain, may oppose the tariffs due to fears of retaliation affecting their exports to China.
Impact on Chinese Manufacturers and European Market
Chinese automakers have faced varying tariff rates. BYD, for example, was initially hit with a 17.4% tariff, which was later reduced to 17.0%. This could affect BYD’s plans to achieve a 5% market share of EV sales in Europe by 2026.
The EU will import 438,034 BEVs from China in 2023, valued at €9.7 billion ($10.7 billion), representing a 21.7% market share of BEV sales. Chinese-branded BEVs specifically account for 7.6% of this share.
Recent trade data show a 12.3% decline in China’s exports of BEVs to the EU-27 in the year to July compared to the same period last year. This decline may reflect both the impact of impending tariffs and weaker demand in Europe, which has also impacted domestic automakers.
Manufacturer Responses and Market Strategies
Chinese manufacturers have responded to these challenges by exploring manufacturing opportunities in duty-free zones. BYD has announced plans to establish manufacturing facilities in Europe and Turkey, the latter of which is part of the EU customs union. This move would allow BYD to avoid the additional 17% tariff imposed on its vehicle exports from China to Europe.
Other automakers are also adjusting their strategies. Volkswagen is reportedly considering closing some of its factories for the first time in its history to cut costs amid sluggish EV sales. New car registrations in Germany for August were down 27.8% year-on-year, with BEV registrations specifically down 68.8% year-on-year.
Price Differentials and Market Incentives
Despite slower demand in Europe, the market still offers incentives for Chinese automakers, namely the ability to sell at higher price points and achieve better profit margins. For example, a BYD Dolphin model retails for €35,490 in the Netherlands (eligible for government subsidies and rebates), compared to 99,800 yuan (€12,702, $14,016) in China.
Global Implications and Future Outlook
The global EV market continues to evolve rapidly, and manufacturers are adapting their strategies to navigate the complex landscape of international trade policy. As governments seek to balance economic interests with environmental goals, the EV industry continues to lead trade and policy discussions.
The interplay of government policies, manufacturer strategies, and consumer preferences will continue to shape the global landscape of EV production and trade as the EV market matures and competition intensifies.
