Yuyuantan Tian: Imposing tariffs and attracting investment are mutually exclusive, the European Union should make a rational choice

On October 4th local time, EU member states voted on and passed the European Commission's proposal to impose tariffs on electric vehicles from China.

Tan Zhu learned that 10 EU member states voted in favor, 12 EU member states abstained, and Germany, Hungary, Malta, Slovakia, and Slovenia voted against.

Before the vote, Reuters had leaked that France, Italy, Poland, and Greece would vote in favor.

According to EU rules, a proposal can be blocked only if two conditions are met simultaneously - 15 member states vote against it, and the number of opposing votes reaches 65% of the EU's total population. The combined population of France, Italy, Poland, and Greece already accounts for 39% of the EU's total population. In other words, even if all other countries oppose, the combined population is only 61%, still below the 65% threshold.

Faced with this result, insiders told Tan Zhu:

Not long ago, when Minister of Commerce Wang Wentao visited Europe, the European side expressed political willingness to continue negotiations. The European side also indicated that even if there is a final ruling, it will not affect continuing talks with China. China, in a negotiating attitude, also hopes to move towards the European side, and many issues can be discussed. However, if the European side's political willingness remains only in words and not reflected in actions, it will be difficult to negotiate.

After the European Commission launched an anti-subsidy investigation on electric vehicles from China, the China Chamber of Commerce for Import and Export of Machinery and Electronic Products has been playing the role of the industry's defense. The head of the Chamber of Commerce has attended relevant hearings in Europe multiple times and exchanged views with government and industry representatives from various EU countries.

The head of the Chamber of Commerce stated that many EU member states voted in favor of imposing tariffs on China in order to "force" Chinese companies to invest in Europe.

In fact, from the European side's mention of "even if there is a final ruling, it will not affect continuing talks with China," one can see the European side's mindset - hoping to retain the "power" to initiate unreasonable investigations while also fearing losing the opportunity to attract Chinese funds and technology by tearing apart relationships.

Regarding these considerations, China's stance is clear - supporting tariffs will lead to loss of investment.

The industry has made it clear:

Imposing tariffs and attracting investment cannot be achieved simultaneously. An open and fair market environment is the most favorable factor for attracting investment, and the EU cannot both impose tariffs on Chinese products and expect Chinese companies to invest and cooperate in Europe.

Tan Zhu has previously mentioned that the reduction of tariffs has always been used by the European side as a bargaining chip in negotiations, but the amount of tariffs is not the focus - the act of imposing tariffs itself is the focus.

The European side imposed tariffs on Chinese companies under the pretext of enjoying "unfair subsidies," and once tariffs are imposed, subsidies are deemed to exist. Even if the tariff rate is low, as long as subsidies are identified, the European side can use other means to suppress Chinese companies.

These means include the "Foreign Subsidies Regulation," and even creating new measures and regulations.

Therefore, after seeing the voting results, China also clearly stated its position.

Supporting tariffs will lead to loss of investment, what does this sentence imply?

It is important to note that the electrification transformation of European cars is not progressing smoothly Data shows that this year, the growth rate of new energy vehicle sales in Europe has slowed down. One of the important reasons why European consumers are unwilling to choose electric vehicles is that the competitiveness of electric vehicles produced by European car manufacturers is significantly lagging behind.

The EU has set a ban on the sale of fuel vehicles by 2035, and electrification is the direction that European car manufacturers have to choose.

However, European car manufacturers face two problems with electrification:

First, compared to traditional fuel vehicles, only half of the labor force is needed for the manufacturing of electric vehicle components. In other words, transitioning to electrification will bring about employment issues.

Second, the current cultivation of the electric vehicle market in Europe is not ideal, and European car manufacturers have a significant advantage in the research and production of fuel vehicles. This leads to some hesitation and indecision among European car manufacturers.

As a result, European car manufacturers are making dual investments in fuel vehicles and electric vehicles. However, it is important to note that the research and development of electric vehicles also require a substantial amount of money.

In this situation, there are only two paths that can save European car manufacturers:

The first is to compress research and production costs as much as possible while ensuring product competitiveness.

The second is for the European electric vehicle market to rapidly expand and show a clear market shift.

Both of these scenarios cannot be achieved without one condition - cooperation with China.

European car manufacturers are much clearer about this than European politicians.

Previously, the Chairman of BMW Group publicly stated multiple times that imposing tariffs will not only hit German car manufacturers but also escalate trade frictions between China and Europe, leading to "a trade dispute that benefits no one." Executives from Mercedes-Benz have also expressed opposition to imposing tariffs.

Just one day before the EU vote, BMW made a new move - there were reports claiming that BMW has ruled out the possibility of participating in the next round of financing for Swedish battery manufacturer Northvolt.

Northvolt was once seen as the "hope of new energy in Europe." In 2020, even before Northvolt officially started production, BMW signed a long-term contract worth 2 billion euros with them. Subsequently, several European car manufacturers, including Volkswagen, reached contracts worth over $55 billion with Northvolt.

These car manufacturers not only placed orders but also became investors in Northvolt, participating in the company's investment.

The German government also had high hopes for Northvolt and provided up to 900 million euros in assistance this year.

However, the result is that Northvolt has been continuously delaying deliveries and facing issues with battery quality. In this situation, BMW plans to no longer participate in investments in Northvolt.

From the perspective of Europe's transition to electrification, Europe needs China more.

Supporting tariffs will lead to loss of investment and the opportunity for electrification transformation.

European countries need to think this through.

Within Europe, there are many voices of opposition. Germany is one of the representatives. Since the European Commission launched an unreasonable investigation into Chinese electric vehicles, Germany has been working to oppose the EU's imposition of tariffs on Chinese electric vehicles.

According to disclosures, a few days before the vote, the German Chancellor has been communicating with other European leaders, repeatedly emphasizing that if the EU really imposes tariffs on Chinese electric vehicles, the consequences will be very serious Not only the German government, but also the German industrial sector is actively speaking out. On October 3, German unions and industry employee representatives publicly issued a "joint statement" clearly opposing the EU's imposition of tariffs on electric vehicles from China, stating that this is a "wrong path" and will not solve the EU's own problems.

In an internal vote in July, Germany abstained. This time, Germany clearly voted against. Previously, Malta, Hungary, Slovakia, and Cyprus voted against.

The opposition is not limited to these countries. Recently, Spanish officials also called for the EU to resolve the issue through negotiations.

Germany's opposition is the strongest because Germany has more cooperation with China in the automotive field and benefits more.

There is still some time before the final ruling after this vote. For both China and the EU, there is still a possibility of resolving the issue through negotiations.

During this period, it is not only a time for countries opposing the tax to continue working with other EU countries, but also the last window of opportunity for those EU countries that voted in favor to seize the opportunity of new energy transformation. Whether they can seize it depends on these countries themselves.

It is understood that on October 7, China and the EU will conduct a new round of negotiations. Before the negotiations, the European side needs to show sincerity and take action.

Source: The Paper News, Original Title: "Yu Yuan Tan Tian | It is impossible to both impose tariffs and attract investment, the EU should make a rational choice"