The danger of a trade war is visible Europe with China as the controversy that erupted over the European Commission’s investigation into unfair competition with imports of Chinese electric cars.

The development of the dispute will largely depend on the decision expected to be taken by Commission at the beginning of June for the imposition of duties in Chinese electric vehicles, with its president, Ursula von der Leyento indicate the past Tuesday that Europe will take a “tailored approach” and any tariffs imposed will “be commensurate with the level of damage” caused.

On her part, China considers that such a move would violate its rules World Trade Organization and that it has the right to respond with restrictive measures to the imports it makes from its countries EU. In the past few days, the Beijing leaked that he will impose tariffs on wine and dairy products from the EU as well as airplanes. He also warned of an increase from 15% to 25% in tariffs on imports of European internal combustion cars.

Although imports of wine, dairy and aircraft accounted for only 3% of total Chinese imports from the EU in 2023, such a move would likely be followed by new restrictions, depending on the EU’s decision in June.

In each case, imposing tariffs on Chinese electric cars will also cost Europewhile the benefit for the car companies themselves will be doubtful and rather short-term, as even industry players believe.

The European car industry has close relations with the Chinese market, from which it supplies to a significant extent the components necessary for its production and to which a not inconsiderable percentage of its total exports is directed (the German Mercedes has 16% of total revenues of sales in China). Therefore, if China raises tariffs on these products, the benefit to European companies is automatically limited.

This is also a major difference for Europe compared to the US, which announced two weeks ago a quadrupling of tariffs on Chinese electric cars – from 25% to 100% – as part of a wider trade conflict with China from period of Donald Trump’s presidency. American automakers, however, do not have a substantial dependence on Chinese companies for their components and therefore have more leeway in this matter.

Representatives of leading European car manufacturers recognize that there is no other way to compete with Chinese companies than to close the gap they have with them in terms of production costs, which according to some estimates is in the order of 30%. Member of the Board of Directors of Volkswagen told a conference in Munich this week that European carmakers have two or three years to adapt. “If we don’t move quickly … it will be really difficult (for German industry) to survive,” he said.

Similarly, the chief executive of Stellantis – the company created by the merger of Fiat Chrysler and French group Peugeot – said the tariffs were a “trap” and there was not much time for businesses to adjust.

Chinese electric cars’ share of the European market rose to 19% last year from 16% in 2022while the Chinese BYD’s intention to sell the five-door Seagull model in Europe from next year at a final price for the consumer lower than 20,000 euros, after customs duties and any other obligations to comply with European regulations, caused particular concern.