The probe may ultimately lead to import tariffs on Chinese vehicles, drawing sharp rebuke from Beijing, who called the move a blatant act of protectionism. There are also concerns that Beijing may retaliate against any trade curbs.The most powerful tool Beijing can wield is restricting access to its huge domestic market. China is the world’s largest car market, and while foreign car manufacturers are losing market share, German car companies are still very reliant on revenue from China.
Beijing could also retaliate against other European product exports. Duncan Wrigley, chief China economist at Pantheon Macroeconomics, said China is likely to target luxury goods, cosmetics and wine. After news of the latest EV probe, Beijing said Thursday it will maintain anti-subsidy duties on potato starch imported from the EU for five years.“In China’s manufacturing, EVs are still relative small fry. But the industry’s rapid expansion, innovation and advanced manufacturing techniques hold promise for future economic growth. It’s also supporting other sectors — when the economy is short on growth drivers. EU tariffs on Chinese EVs would hurt.
If the tariffs levied by the EU are too high, “China will certainly take measures on rare earth supply,” said Zhao Yongsheng, a professor at the University of International Business and Economics in Beijing. “It’s highly unlikely that China would just watch and let it go.”