Trade war: China seizes the WTO to counter European taxes, what to expect?

In a further escalation of international trade tensions, China has officially filed a complaint against the European Union with the World Trade Organization (WTO). This move follows the EU's decision to impose significant customs duties, between 8% and 35%, on electric vehicles imported from China. According to the European Union, these taxes aim to correct competition deemed unfair due to Chinese state subsidies. Faced with this measure, China retaliates and denounces an attack on the principles of free trade. This conflict comes as the two economic powers attempt to position themselves as world leaders in ecological transition and technological innovation.

The imposition of customs duties by the EU: an act of protectionism?

When the European Union announced, after a year-long investigation, customs duties ranging from 8% to 35% on electric vehicles imported from China, Beijing's reaction was not long in coming. To justify its decision, Brussels cited an investigation which revealed that Chinese manufacturers of electric vehicles benefited from state subsidies described as “deleterious” for European competitiveness. These subsidies, according to European authorities, distort the rules of the game to the detriment of European manufacturers, who struggle to compete on costs in the face of Chinese models massively supported by the State.

Customs duties thus aim to level out what the EU perceives as an imbalance. In an official statement, the EU specified its need to “protect its market and its jobs in the face of commercial practices deemed unfair”, and insists on the fact that Chinese subsidies directly threaten Europe’s ambitions for ecological transition. The measures target renowned brands in China in particular, but affect the entire automotive ecosystem, including the supply chains that supply European manufacturers with essential parts.

China's counterattack: towards a showdown at the WTO

Faced with this escalation, China quickly reacted through an official procedure with the WTO. It requests a consultation with the EU, the first step before a potential arbitration procedure. “To protect the interests of the electric vehicle industry and promote fair global ecological transformation, China has decided to challenge the EU's anti-dumping measures,” the Chinese Ministry of Commerce announced. Chinese authorities denounce a protectionist decision which, according to them, harms the global EV industry, even though the two powers have advocated cooperation in the field of energy transition.

This WTO procedure could, however, encounter legal obstacles, with the institution's appeal body currently paralyzed due to internal disagreements, notably caused by the United States. However, China and the EU have an alternative with the MPIA system, a temporary resolution mechanism which could allow them to find a solution without waiting for an overhaul of the WTO system.

The trade dispute between China and the EU over electric vehicles could either calm down through diplomacy or escalate, thereby affecting bilateral relations and the renewable energy sector as a whole. If a negotiation were successful, the two parties could avoid destabilization of their respective markets and preserve their efforts in terms of energy transition. However, if the dispute persists, it could slow down global ecological ambitions, but also strengthen distrust between powers, and slow down exchanges and innovations in a sector that is nevertheless crucial for the future.