(qlmbusinessnews.com Wed. 17th July, 2024) London, UK —
EU and US Tariffs on Chinese EVs: A New Era of Trade Fragmentation?
Global trade is facing significant challenges, according to Dr Ngozi Okonjo-Iweala, the Director General of the World Trade Organization (WTO). We are witnessing increasing protectionism and some undermining of WTO rules, leading to fragmentation, she stated.
Dr Okonjo-Iweala emphasised the importance of global trade in fostering resilience and growth among nations. However, recent actions by major economies have heightened tensions. The EU has imposed provisional tariffs of up to 37.4% on Chinese electric vehicle (EV) imports, following the US's 100% tariffs introduced in May. Both Washington and Brussels accuse China of unfairly subsidising its EV sector, allowing for cheap exports that threaten Western jobs.
US President Joe Biden has also raised tariffs on other Chinese products, including EV batteries, solar panel cells, and computer chips, as part of a strategy to boost domestic green technology through the Inflation Reduction Act. This legislation aims to reduce reliance on Chinese imports by investing billions into the sector.
EU Trade Commissioner Valdis Dombrovskis remarked that Europe welcomes competition but insists it must be fair, highlighting concerns over China's market practices.
Last year, global trade volume fell for the third time in 30 years, with a 1.2% decline linked to inflation and higher interest rates. The WTO forecasts a recovery this year but notes that recent events have fundamentally reshaped global trade dynamics. Gita Gopinath, the IMF's First Deputy Managing Director, noted that recent shocks, such as the pandemic and Russia's invasion of Ukraine, have driven countries to prioritise economic and national security in their trade and investment decisions.
This shift is affecting nations worldwide, forcing them to choose between strengthening ties with Western powers or aligning with a China-Russia axis. Dr Okonjo-Iweala expressed concern over the growing fragmentation in trade, with transactions between like-minded blocs increasing faster than those across different blocs. This trend, she warned, could be costly, potentially reducing global economic output by up to 7%, or £5.8 trillion, according to the WTO and IMF estimates.
The EU's tariffs on Chinese EVs follow a surge in their exports to Europe, which grew from $1.6bn in 2020 to $11.5bn last year. Chinese manufacturers like BYD, Geely, and SAIC have benefited from substantial government subsidies, although Jens Eskelund of the European Union Chamber of Commerce in China argues that these companies are now competitive without state aid. He described the introduction of tariffs as symptomatic of an imbalance in the trade relationship.
Eskelund also highlighted the decline in EU exports to China since 2017, despite China's economic growth, attributing this to restrictive Chinese market practices. The European Commission is working to reduce economic dependence on China, with President Ursula von der Leyen advocating for de-risking, not decoupling.
Several major companies, including Ikea, Nike, and Apple, are also reducing their reliance on Chinese manufacturing. While the EU and China are set to discuss the EV tariffs, Chinese state media has reported potential retaliatory measures against EU goods such as pork, cognac, and luxury cars.
Other global trade barriers persist, notably the Panama Canal's reduced shipping capacity due to insufficient rainfall and disruptions in the Suez Canal caused by attacks on commercial ships. These issues have led to increased shipping rates, which could contribute to inflation, posing further challenges for consumers.
Despite these tensions, Dr Okonjo-Iweala noted trade's resilience and suggested that some WTO rules need updating to address climate change. She expressed hope that the world would avoid a repeat of the 1930s' retaliatory tariffs, which led to widespread economic decline.
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