Biden's China Tariffs: Will Europe Face Retaliation?

President Biden's decision to double down on Trump-era tariffs against China has raised concerns that Europe may face retaliation. China has warned of "all measures necessary" to protect its interests, and experts fear an escalating trade war. Analysts warn that such a war could raise consumer prices and hurt exporters on both sides.

President Biden's latest move to double down on Trump-era tariffs against China has sent shockwaves through the global economy, particularly in Europe. China has warned of "all measures necessary" to protect its interests, and experts fear that the continent may face retaliation.

The European Union recently announced tariffs on Chinese-made electric vehicles, sparking concerns that China may retaliate with tariffs on European cars, agricultural products, or luxury goods. Analysts warn that an escalating trade war could break out, raising prices for consumers and hurting exporters and their workers on both sides.

China is a rising economy of more than a billion people, while Europe has a relatively well-off population of over 400 million. Both are major markets for each other, making a trade war particularly damaging.

The Chinese government has said it will take "all measures necessary to protect our legitimate rights and interests" in response to the tariffs on electric vehicles, but has not specified what those measures might be. However, it has launched an anti-dumping investigation into European brandy exports in January, a warning shot aimed at French cognac.

The EU is also investigating subsidies given to Chinese wind and solar companies and whether China is unfairly restricting access to its market for medical devices.

The European Union said it had reached out to China to discuss the findings of the EV investigation, and that the tariffs would take effect on July 4 if the two sides fail to resolve the issue. The tariffs would be provisional and finalized only after four months.

China's Global Times newspaper has reported that Chinese companies are planning to ask the government to launch an anti-dumping investigation into certain EU pork products and an investigation of subsidies for some dairy products.

The state-owned paper has also quoted a leading Chinese auto industry expert calling for raising the tariff on imported vehicles with larger engines to reduce carbon emissions, a move that would hit high-end German exports from Mercedes and BMW.

Volkswagen expressed concern that the EU tariffs on Chinese electric vehicles could result in an escalation of trade conflicts and said the European Union is promoting an ongoing trend toward protectionism, nationalism, and isolationism.

Research firm Sanford C. Bernstein noted that the impact on German makers would be muted by the fact that most of their cars sold in China are made locally. Only 2% of Volkswagen’s China sales are imports vulnerable to higher tariffs, along with 15% for BMW and 19% for Mercedes-Benz.

However, China could also impose retaliatory tariffs on French and Italian luxury goods, cosmetics, wine, chocolate, or furniture. While Germany fears retaliation against its automakers and chemical producers, France and Italy have been the primary advocates within the EU for tariffs on electric vehicles.

How big an impact the provisional tariffs would have on Chinese EV sales is unclear. Some Chinese companies might still be able to sell at a profit, even with duties as high as 30%. The provisional tariffs range from 17.4% to 38.1%, depending on the carmaker, and come on top of an existing 10% tariff on vehicles. The new rates would pose a serious market barrier to Chinese EV exports, the China Chamber of Commerce to the EU said.

Calculations by the Rhodium Group found that five of six models from BYD, China's largest EV maker, would earn a profit with a 30% tariff, while a made-in-China Tesla Model 3 would sell at a loss.

The uncertainty surrounding China's potential retaliation has sent shockwaves through European markets. The continent is bracing for a possible trade war that could have far-reaching consequences for its economy and its relations with China.