The European Union has found a way to keep electric-vehicle makers happy without flooding the market with cheap Chinese cars.
The European Commission, on January 12, issued a guidance document allowing carmakers to submit price undertakings, including “the minimum import price, sales channels, cross-compensation, and future investments in the EU.”
This negotiation-driven solution to replace steep tariffs is likely to keep a full-blown trade war at bay.
Each car model will be evaluated on a case-by-case basis.
The commission had imposed tariffs ranging from 7.8% to 35.3% on Chinese EV imports in October 2024 to counter what it called unfair subsidies. Beijing has since pushed for minimum prices to replace tariffs.
The move signals the EU’s shift toward cooperation as Chinese exports increase despite Western tariffs. Beijing, which approached the World Trade Organization over the duties in November 2024, now sees an opening.
The strategy to set price floors is “more practical, targeted and consistent with WTO rules,” China’s commerce ministry said on January 12. In November 2024, China had approached the World Trade Organization over the duties imposed.
The EU’s softer stance offers relief not only to Chinese carmakers like BYD, Xpeng, and Nio, but also for the likes of German brands BMW and Volkswagen, which have a large production capacity in China. Volkswagen made the first “meaningful offer” on a price undertaking in December, European commission spokesperson Olof Gill told The New York Times.
Consumers likely won’t see EV price tags change much since the EU wants automakers to close the subsidy gap, or match the price of a comparable EU car. But the shift comes with costs.
This friendly gesture is a “poor policy choice,” according to experts at the Centre for Economic Policy Research, an independent nonprofit organization.
“[A] price floor keeps consumer prices artificially high, effectively transferring income from European consumers to Chinese producers,” they warned in a January 8 post. “It would eliminate €2 billion in annual tariff revenue — a direct fiscal loss.”
Enforcement of a price floor is also more complex and more prone to disputes or circumvention, the CEPR noted.
“Clearly, Chinese firms prefer a system that raises their export prices rather than one that taxes them,” the experts said.