Germany hopes to avoid a trade war with China

With billions of dollars in trade between China and the European Union at stake, Germany’s second-highest cabinet official called on Saturday for the two sides to begin talks to try to resolve a growing dispute over tariffs.

Robert Habeck, Germany’s vice chancellor and minister for economic affairs and climate, said he hoped talks would begin soon between China and European authorities. He expressed hope that the tariffs could be avoided.

Still, he added that the tariffs could be justified if the commission’s concerns about China’s subsidies to its electric car industry were not resolved.

This month, the European Commission, the European Union’s executive body, proposed tariffs of up to 38 percent on electric cars from China, on top of an existing 10 percent tariff on imported cars. The commission said it found that China’s electric car sector was heavily subsidized by the government and state-controlled banking system.

“These tariffs are not punitive,” Habeck said, adding that the tariffs are intended to offset subsidies that violate World Trade Organization rules.

But Chinese officials sharply criticized the European tariffs after meeting with him. Wang Wentao, the Minister of Commerce, described them as protectionist and called on Germany to help stamp them out. “Germany is expected to play an active role in the EU and promote closer ties between the EU and China,” the ministry said in a statement.

The National Development and Reform Commission, China’s top economic planning agency, said in a separate statement that the tariffs were inconsistent with international efforts to address climate change. The commission also warned that “China will take all measures to safeguard the legitimate rights and interests of Chinese companies.”

There is no doubt that the tariffs have put Germany in a difficult position. Chinese exports of electric vehicles represent a growing challenge for European car manufacturers, including German ones. But German carmakers have extensive operations in China and fear they will be harmed by Beijing’s retaliatory trade actions.

Habeck visited several of China’s most influential economic ministries on Saturday in Beijing, but conspicuously did not meet with Premier Li Qiang, China’s No. 2 official. Habeck then flew to Shanghai, arriving earlier than expected to hold a press conference.

Habeck declined to comment on why he has not met Li, who is in some ways his counterpart.

Habeck criticized China for providing Russia with goods that have both civilian and military applications for its war against Ukraine. China’s trade with Russia increased by more than 40% last year and half of the increase was related to these dual-use goods, he said.

“These are technical goods that can be used on the battlefield and this has to stop,” he said.

Habeck is scheduled to speak on Sunday in Shanghai with German business leaders and then visit neighboring Hangzhou, a technology hub.

WTO rules allow tariffs designed to offset the effects of subsidies. For its part, China denies that it unduly subsidizes its electric vehicle companies and claims that its leading role in the industry worldwide is the result of efficient manufacturing and innovation.

Anticipating the tariffs, China’s Ministry of Commerce in January took the first steps to impose tariffs on imports of cognac and other wine-based spirits, mainly produced by France, one of the countries that has led calls for tariffs on cars. trams in China. On Monday, China’s Ministry of Commerce threatened to impose tariffs on pork imports from Europe.

And state-controlled media outlets in China reported last week that the Chinese auto industry is asking the Ministry of Commerce to impose tariffs on imports of gasoline-powered cars from Europe, a move that would mainly affect car manufacturers. Germans. China’s Ministry of Commerce declined to comment on Thursday.

China, the world’s biggest car market, has nearly halved its imports of German cars over the past five years as its domestic carmakers have become increasingly competitive. Chinese automakers dominate global production of electric vehicles and gasoline-electric hybrids, which now nearly match sales of gasoline-powered cars in China.

But many of China’s wealthiest customers still covet German brands. Mercedes sells more of its most luxurious cars, German-made Maybachs, in China than in the rest of the world combined.

German automakers also have joint ventures with Chinese companies to build cars in China. Volkswagen is making major new investments in production and engineering in China, while also starting to cut staff in Germany.

Germany is crucial to China’s efforts to prevent new European tariffs from being finalized this fall. This is also what happened the last time China and Europe were involved in a major trade dispute.

In 2013, under pressure from China, Germany brought together European governments to nullify tariffs proposed by the European Commission on Chinese solar panels. Chinese solar panel manufacturers quickly flooded Europe and European industry collapsed.

European leaders pushing for tariffs on China’s electric vehicles argue that the European auto industry now faces an equally dire threat.

To block the tariffs, Beijing needs to persuade the majority of European Union countries, which represent at least 65 percent of the bloc’s population, to ignore the European Commission.

In its response to European tariffs, China is expected to target key countries, analysts say.

Possible tariffs on gasoline-powered cars would hit Germany, the bloc’s most populous country, with 19% of the union’s population. Italy is the third country by population and also exports gasoline-powered luxury vehicles to China – Ferrari and Lamborghini sports cars.

France is Europe’s second most populous country and potential tariffs on China’s cognac target one of its national symbols.

Spain, Europe’s fourth most populous country, is Europe’s top exporter of pork to China, a product Beijing has also threatened to penalize.

German automakers have long played a central role in China’s industrial development. When the country began opening up to international trade nearly half a century ago, Chinese officials were wary of Japan’s automakers because of long-standing enmities, and dubious of those in Detroit because of concerns about strength. American military in East Asia.

Beijing has allowed German carmakers, led by Volkswagen, to open car factories with Chinese manufacturers, bypassing China’s 100% tariffs on imported cars. China reduced tariffs on imported cars to 25% in the years following its accession to the World Trade Organization in 2001, and in 2018 further reduced tariffs on most imported cars to 15% in a move to alleviate trade tensions with the United States during the Trump administration. .

But Beijing continued to pressure foreign automakers to build cars in China using almost all Chinese-made parts. Volkswagen said a decade ago that cars assembled by its joint ventures in China were approaching 99% local components.

In addition to the 15% tariff, China also charges a 10% tax on buyers of gasoline-powered cars. Cars and sport utility vehicles with very large gasoline engines, which are mainly imported, pay an additional tax of 40%.

I read you It is João Liu contributed to research.