Threatening Trade War: Car tariffs only produce losers

"The EU will not compensate for its competitive disadvantages compared to China with protective tariffs. This does not only apply to the car industry. Instead, it needs a bold economic policy.

 

Berlin is once again in a bad position after the vote on car tariffs. Despite the German "last-minute no" forced by Chancellor Olaf Scholz, the EU states have cleared the way for protective tariffs on electric cars from China. 

 

Only Hungary, Slovakia, Slovenia and Malta voted with Germany, a "strange" alliance. It shows how weak Germany's position in the EU has become.

 

Despite lively telephone diplomacy, Scholz has not managed to gather serious allies. Geopolitically, the German vote is a sign of weakness, a kowtow to China. It undermines the unity of the EU and damages its credibility as a global player. It may be that this was just appeasement towards the important trading partner China. The outcome of the vote was clear. But the impression remains bad.

 

That does not change the fact that the tariffs are wrong and Germany is not the only loser. The EU Commission has also lost out. It now has free rein. It can implement tariffs of up to 35 percent. This increases the pressure on China to negotiate. But it has not received a clear mandate for its trade policy.

 

Many losers

 

Of the important EU states, only France, Italy, the Netherlands and Poland voted for the tariffs. Most states abstained. Here too, many may have done so to avoid countermeasures. Nevertheless, the Commission is weakened.

 

The losers - and this is too often overlooked - are the consumers. They have to prepare for less competition in the market for electric cars. This reduces choice and keeps prices high. This also applies if Brussels and Beijing reach an agreement and agree on quotas and minimum prices for the import of electric cars.

 

Climate protection has lost out. The EU is jeopardizing its own climate goals if it restricts access to cheap green technologies just because they come from China.

 

 The German car industry, which itself produces electric cars for Europe in China and needs China as a sales market, has lost out.

 

The walls are being built up

 

The free trade on which the EU's prosperity is based has lost out. The car tariffs are another step towards isolation. A spiral of protectionism is looming. The EU is not taking such brutal action as the USA is doing under President Joe Biden. The USA has arbitrarily imposed punitive tariffs of 100 percent. The EU's tariffs are lower and come in the guise of anti-subsidy tariffs that ostensibly comply with international trade rules. The result is the same: the walls are being built up.

 

It is not only the EU Commission that counters this by saying that China is leaving its trading partners no choice because it has built up large overcapacities and is flooding the world with products. With the car tariffs, it also wants to set an example for other markets: wind turbines, steel, computer chips, medical products.

 

This shows a bizarre understanding of trade. Isn't it the capacities that exceed domestic needs that make trade possible in the first place? 

 

This is very reminiscent of Biden's predecessor, Donald Trump. It stems from the idea that one person's gain is another person's loss, that trade is a zero-sum game. If you follow this, production can actually only be kept in the EU if it is taken away from the Chinese.

 

Success cannot be planned by politics

 

If there is an argument for the tariffs, it is at most the Chinese subsidies. But they are not the main reason for the weakness of the (auto) industry in the EU. It is management errors and comparatively unattractive product ranges. It is the high energy prices in the EU, the bureaucracy, the lack of digitalization.

 

This is where politics must start in order to bring the EU back to a position of strength instead of hiding behind tariffs. To do this, the Commission must abandon the dogma of making the Green Deal an industrial success "at all costs". Under the spell of China's and the USA's subsidy programs, it is far too guided by the false belief that it can plan industrial success. The current weakness of the Chinese planned economy should be warning enough.

 

Tariffs buy industry time at best. There is no guarantee that it will use it sensibly when the competitive pressure is removed - as the experience of the policy towards Japan in the 1980s shows. It is not the first time that Europe has believed it has to protect itself from a supposedly existential threat from the East."

 

Global South, which is a huge market, will proceed buying cheap and good quality Chinese EVs. Nobody will buy expensive and low quality Western EVs protected from global competition by the wall of tariffs. Western politicians are destroying Western car industry and ability to produce enough military gear in case of a big need. The West is destroying itself with these tariffs.