China has warned that it would retaliate with countermeasures if the UK follows the European Union and puts the brakes on imports of Chinese cars into the country.
The issue has come to a head as the EU has reportedly given the UK an ultimatum to levy tariffs or face its cars being left out of the bloc’s 'Made in Europe' benefits, part of the proposed Industrial Accelerator Act designed specifically to protect local manufacturing from cheap Chinese imports.
“China urges Britain to abide by the rules of the WTO [World Trade Organisation] and think twice before acting before it follows the EU’s lead,” a spokesperson from the Chinese Ministry of Commerce said in a press conference on 19 October. “If the UK insists on imposing restrictions on Chinese electric vehicles, China will resolutely retaliate to safeguard the legitimate rights and interests of Chinese industries,” he said.
Separately, on 20 October, the UK business secretary Jonathan Reynolds told a government committee that a decision whether to impose tariffs remains “under close review” as discussions continue with the EU on the topic. “I'm certainly willing to talk and have been talking to European colleagues about a shared set of problems and how we resolve those,” he said.
The speed at which Chinese brands including MG, Omoda-Jaecoo and BYD have established themselves in the UK has dramatically reshaped the UK market, with Chinese brands taking a 23% share in September. BYD was the second-best-selling brand in September and MG fourth, according to figures from trade body the SMMT. The Jaecoo 7 was again Britain’s best-selling car.
The business secretary acknowledged the growth of imports but suggested that the UK’s traditional role as an exporter has to be taken into account. “I'm balancing our own interests in terms of being an outward-facing economy with our own domestic market,” he said.
European car makers have long been opposed to tariffs on Chinese cars but have softened in recent months as their own sales in China plummeted while also coming under pressure in Europe.
However, Mercedes-Benz warned on Wednesday that the EU’s protectionism risks price increases. “You create resilience – a good thing – but you drive costs upward,” said CEO Ola Källenius at the Berlin Global Dialogue, according to a report by Bloomberg. “It’s a balancing act.”
Among the car makers building in Britain, UK sales for Nissan have dropped 15% this year, with Toyota down 1.8%, according to figures from the SMMT. Mini sales, on the other hand, have soared by 25% and JLR's are up 3.6%.
Nissan and JLR, along with the SMMT and the government, have underlined the importance of being inside the tent on the EU’s proposed Industrial Accelerator Act, which would offer UK-built cars benefits such as access to state EV incentives, electric corporate fleet targets and state purchasing.
However, the question is whether the UK can join without having to give into EU pressure to launch its own version of the EU’s ‘countervailing’ tariffs of up to 45% on China-built EVs, which the bloc imposed to address “unfair” Chinese state aid ranging from direct subsidies to cheap financing and raw materials at below market rates.
The EU has now agreed with China quotas on hybrid and plug-in cars, something the UK would likely be expected to follow.
Speaking to the committee, Reyolds pointed out that no car maker in the UK has filed a complaint with the Trade Remedies Authority, the traditional route to triggering an investigation into ‘dumping’ cheap products to distort the market.
The business secretary also took issue with the accusation by some, including Nissan, that the Chinese could use the UK as a ‘Trojan horse’ for importing cheap cars into the EU. “If you were assembling [cars using] Chinese components similar to how Nissan began in the north-east of England, you wouldn't qualify the under the TCA rules of origin for that,” he said.
The post-Brexit TCA (EU-UK Trade and Cooperation Agreement) stipulates that, from January, cars shipped between the UK and the EU must contain 55% of parts originating in either the UK or EU, precluding any Chinese maker building in a ‘screwdriver’ plant using kits imported from China.
Nissan is currently negotiating with Chery to take over part of its under-used Sunderland plant. “Chery has said they urgently need a local production site in Europe, but they are presumably waiting to see if London can strike a deal with Brussels so they can avoid tariffs and quotas,” independent automotive analyst Matthias Schmidt told Autocar.
MG has said that imposing additional tariffs on EVs will hurt consumers. “I'm struggling to see how the consumers would benefit from the application of tariffs in the UK to electric vehicles specifically,” Guy Pigounakis, commercial director at MG Motor UK, told Autocar. “Inevitably it's going to increase prices.” Neither BYD nor Chery Group, parent of Jaecoo, offered a comment for this story.
Pigounakis pointed out that Chinese car makers are already locked out of the UK government's Electric Car Grant scheme, which reduces the price of EVs built in Europe and elsewhere by up to £3750. “The UK has already taken action to protect those manufacturers. Applying a tariff on top of that seems draconian,” he said.