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Who’s afraid of cheap EVs?

The EU could instigate a damaging trade war with China over inexpensive battery-powered vehicles. That's a boon for petrol cars.

By Jonny Ball

If a politician’s singular focus was on the transition to net zero, you would think a flood of cheap electric vehicles (EVs) into their domestic market would be greeted with enthusiasm. Not so for Ursula von der Leyen, president of the European Commission, who towards the end of last year launched an investigation into the supply of inexpensive, Chinese-made EVs on the continent. If we’re looking to decarbonise transport, a sector that accounts for around a fifth of global emissions, why would we not want to bring battery-powered cars, often seen as the preserve of wealthy progressive types, to the masses?

The answer is that the EU’s singular focus is categorically not on the green transition. It has a lot more to contend with, not least the financial interests of Europe’s own manufacturers.

When Von der Leyen announced her investigation – under pressure from Parisian authorities worried about the effect that cheaper competition would have on French businesses – she said that “global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies. This is distorting our market.”

According to the European Parliament website, the “notice of initiation” put forward after Von der Leyen’s state of the union address “may result in the Commission levying countervailing tariffs on EU imports of battery electric vehicles from China to offset state subsidies”. That could mean retaliation from Beijing, which already enjoys a €400bn trade surplus over the continent.

The episode recalls a spat between the two gigantic economies a decade ago, which was about cheap, Chinese-made solar panels that were undercutting the renewable technologies made by European manufacturers. Officials in Brussels won’t want a repeat of that particular showdown: the European share of global solar panel manufacturing has declined steeply since then, China has invested ten times more in supply capacity than the EU, and the country is home to the world’s top ten suppliers of solar PV manufacturing equipment. This has brought costs dramatically down worldwide, helping the transition away from carbon-based energy.

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Chinese EVs could be equally transformational, helping us towards the UK’s ambitious target of no new petrol or diesel cars being sold after 2035. But Western governments must balance these ambitions with a desire to protect good, high-value manufacturing jobs in their own countries, as well as security of supply. An EU official explained that they didn’t want their “dependence on fossil fuels” to be replaced by “industrial and technological dependencies”: these concerns around self-sufficiency are at the heart of the trend for reshoring (bringing manufacturing processes back home from overseas), friend-shoring (bringing them to a country’s allies), and Rachel Reeves’s vision of “securonomics”.

The reality is that it’s not just Chinese Communist Party apparatchiks who have lent their support to national industrial champions. The UK government, so rhetorically devoted to free markets and open trade, has provided Nissan with financial support for manufacturing EVs in the north-east of England. Tata Steel will receive half a billion pounds in taxpayers’ money to transition to a greener electric arc furnace. The US, as regular Green Transition* readers know, is “derisking” hundreds of billions of dollars’ worth of private sector investment in green technologies, effectively providing profit guarantees to manufacturers at a scale that would make even the Chinese state-capitalist planners blush.

And, of course, the EU itself isn’t immune to the odd foray into industrial subsidy. The bloc has recently relaxed long-standing rules on state aid for green industries, abandoning once-cherished and fiercely guarded principles of the common market. It has spent billions subsidising “green steel” production, which has actually turned out to be a bung for old-fashioned dirty steel production. And around a quarter of the whole EU’s budget still goes to subsidies distributed through the Common Agricultural Policy – something which hasn’t prevented farmers from across the continent protesting against new green initiatives that limit their emissions and their use of chemicals.

The need to transition to net zero while also defending jobs and supply chains according to national economic self-interest will make these kinds of contradictions and collisions over trade ever more frequent. When EU commissioners spout lines on “market distortion” and “unfair trading practices”, we sometimes need to read between the lines: “for thee, but not for me”.

*This article was originally published as an edition of the Green Transition, New Statesman Spotlight’s weekly newsletter on the economics of net zero. To see more editions and subscribe, click here.

[See also: An insider’s view of a council in financial straits]

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