(Bloomberg) -- German Chancellor Olaf Scholz joined Spanish Prime Minister Pedro Sanchez in calling for the European Union to drop its plan to impose extra tariffs on Chinese-made electric vehicles, potentially undercutting the bloc’s primary tool for pushing back against Beijing’s state-backed industry.
A procession of European leaders have visited President Xi Jinping since the EU announced that it would hit Chinese EVs with duties of nearly 50%, but Sanchez this week became the first to demand a rethink to the impending trade measures. Sanchez thrust himself into the middle of a geopolitical minefield, a rare position for the premier who typically aligns with the EU mainstream.
EU countries are due to give a final nod next month on whether to move forward with the tariffs. If 15 member states representing 65% of the EU’s population vote against the new duties, then the European Commission, the bloc’s executive arm, would be forced to shelve the measure.
“I have to be blunt and frank with you that we need to reconsider — all of us, not only member states but also the commission — our position toward this movement,” Sanchez told reporters Wednesday in Kunshan, China. German government spokesman Steffen Hebestreit welcomed the Spanish move, saying “the direction of travel is one that we share.”
Given the opposition from two of the EU’s largest member states, the commission will have to take notice, and that could affect how the executive arm conducts the ongoing talks with China on the matter.
One senior European diplomat from a country backing the tariffs said they believed that there is still a majority of member states who support the tariffs and that discussions would continue to convince Spain of the need to support the European Commission on this issue.
Former European Central Bank President Mario Draghi this week said that China’s “state-sponsored competition” poses a threat to EU industries as he presented his blueprint for boosting the bloc’s competitiveness.
Xi has long sought to drive a wedge between western allies in order to further China’s geopolitical ambitions, particularly since Commission President Ursula von der Leyen announced the investigation a year ago. She argued that Chinese companies were unfairly benefiting from state subsidies and were flooding Europe with excess production.
Sanchez’s comments surprised some officials in European capitals and in Brussels, since the premier rarely clashes with the EU and he is said to have a good working relationship with von der Leyen. Ahead of his trip to China, officials close to Sanchez said the premier wanted to work as a bridge to avoid a trade war, but that Spain would always align with the broader EU positions.
Germany and Spain both have massive financial incentives to avoid a spiral of tit-for-tat restrictions. German automakers including Volkswagen AG and BMW AG would be hit hardest in a trade spat, as they collectively sold 4.6 million cars there in 2022. Spain is the EU’s second largest car-manufacturer and is seeking to attract investments from China to develop its EV industry — part of the reason behind Sanchez’s trip there this week.
“One of my main targets in this visit was to attract Chinese investments to Spain” in the electric vehicle industry “for those investments to build supply chains in our country,” Sanchez said in Wednesday’s press conference, shortly before commenting on the tariffs.
Germany, Spain and Sweden
Scholz struck a similar line last year after the tariffs were announced, saying in a Bloomberg interview that “we want to sell our cars in Europe, in North America, in Japan, in China, in Africa, in South America, in all the places. But this means that we are also open to get the cars from other countries.”
Germany and Spain aren’t the only countries that are skeptical of the EU’s stance. Swedish Prime Minister Ulf Kristersson has also warned against taking a hard line on China trade. In May, he said the EU shouldn’t “dismantle global trade,” and that “a wider trade war where we block each other’s products is not the way to go for industrial nations such as Germany and Sweden.”
Chinese and EU officials are expected to meet later this month to see if they can reach an agreement before the tariffs come into effect, according to a person familiar with the plans who spoke on the condition of anonymity. But the EU has said that any such solution needs to comply with World Trade Organization rules and address the underlying issue of subsidies, which could make a deal difficult to reach.
Member states will have to vote before the end of October on moving forward with the tariffs. If a qualified majority fails to block the measures, then the commission will publish a final regulation on the tariffs by Oct. 30. The duties would then remain in effect for five years.
China has had a long-held strategy of taking advantage of divisions within the EU to advance its own interests. A trip to France by Xi in May for talks and a day of bonhomie with Macron — whose country has been a key supporter of the EV probe — was seen as an effort to sew division within the bloc. A Chinese probe into EU pork shipments could be particularly damaging to Spain.
China’s goal is to convince enough European countries that the tariffs are a bad idea so they will oppose or water down the final levies. The hope is that the threat of retaliation generates enough pain in those countries to pressure their governments to persuade the EU to back down.
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