There was a time when trade was governed by rules and trade disputes were settled within a supranational organization, the World Trade Organization (WTO), whose decisions were followed. Geopolitical elements were always present, but they were not the protagonists. Today that has changed: trade is today, essentially, a mere geopolitical game.
On October 4, the EU Member States authorized the Commission to impose an increase in tariffs on imports of Chinese electric vehicles of up to 35% (in addition to the 10% they already had), after several months of trade investigation – which showed that China grants state aid and tax relief not permitted – and three months of political negotiation.
Let us remember that these tariffs had already been imposed on a provisional last July. Although the EU justified its decision and made distinctions based on the degree of collaboration of the companies (SAYC and other companies that did not provide information were the ones that received the greatest punishment), the Chinese response was an investigation against European meat exports. pork and dairy products, which greatly affected Spain. The Commission, of course, decided to challenge this investigation before the WTO, as it was mere retaliation.
On this occasion, China’s response to the definitive tariffs has been the decision on October 8 to impose tariffs on European brandy (from 34.8% to 39%), a measure that this time will affect France proportionally more. Brussels will also appeal the decision to the WTO, but war is on the cards.
China’s response
Let us remember that the US raised tariffs on electric cars in May to 100% (from 25%; trump He complained that he would have raised them up to 200%), as well as for semiconductors, electric batteries, photovoltaic cells for solar panels, medical supplies, steel, aluminum and some minerals. The United States did not even bother to do an investigation then: it imposed the tariffs directly, because the objective was not to sanction abusive trade practices, but to block the entry of Chinese products. China also responded to this measure. And this is the important thing: the EU respects WTO rules and the US does not, but China’s response is the same in both cases.
All this is a good preview of what awaits us in the future. Let us remember that, in October 2023, the EU began the first phase of the so-called Carbon Border Adjustment Mechanism (CBAM), during which and (until the end of 2025), European companies must report the emissions associated with their importsalthough they will not be required to pay for the carbon content. Starting January 1, 2026, when the CBAM is fully implemented, imports will be subject to a payment based on the amount of carbon emissions incorporated into the products, which importers will have to pay off by acquiring certificates.
European imports must incorporate the cost of carbon emissions into their price, to become neutral with respect to national production. It is not protectionism, but coherence
The CBAM (essentially a kind of carbon content tariff) will apply to the cement, iron and steel, aluminium, fertilizers, electricity and hydrogen sectors, which are intensive in carbon emissions and, therefore, vulnerable to “carbon leakage”, that is, the relocation of production to countries with less strict climate regulations. The logic of the CBAM is impeccable: if the EU forces its companies to produce without emissions, it is increasing their costs; If at the same time it allows emissions-intensive imports to enter the EU without any restrictions, the only thing it will achieve is to incentivize European companies to leave the European market and produce and export to Europe from abroademitting the same. That is why European imports must incorporate the cost of carbon emissions into their price, to become neutral with respect to national production. It is not protectionism, but coherence and equal treatment of domestic and foreign production.
Now, in a geopolitical framework, impeccable logic and coherence are useless. China grants state aid to its automobile sector, does not allow any company to close (maintaining production is considered strategic) and floods European markets with artificially cheap productsand that fully justifies within the framework of the WTO the imposition of compensatory mechanisms in the form of tariffs (which theoretically cover the price difference resulting from the subsidy). The EU correctly applies the rules to save its industry, but China doesn’t care: it, like the US, does not respond to logic, but to the game of power.
If it does not impose tariffs on carbon content, but maintains its emissions limits in Europe, the result will be that European industry will be replaced by Chinese imports
Therefore, when the EU begins to impose tariffs on Chinese cement, iron, steel, aluminum and fertilizers in 2026, China’s response will be to impose equivalent tariffs on agricultural products, basic machinery and everything with which China can harm China. the EU without risking its industrial production. This difference between the theoretical operation of trade and the practical operation is going to be very costly for the EU. The bad thing is that it has no choice: if it does not impose tariffs on carbon content, but maintains its emissions limits in Europe, the result will be that European industry will be replaced by Chinese imports.
Furthermore, almost regardless of who governs in the US, it is very likely that there will also be a reaction against the European carbon tariff: with diplomacy if he governs Harriswithout diplomacy if he governs trumpbut retaliation, in any case. And it is also likely that the Americans will continue to block the appointment of judges to the Appellate Mechanism of the WTO Dispute Settlement Body, so that the EU’s complaints to this body will never be resolved.
The rules are not important
In short, the EU should understand as soon as possible that the debate on electric cars or emissions in trade is now just a mere geopolitical game, in which rules and technical arguments have no importance. Europe can continue to say that it is seriously investigating dumping and subsidies, or that it is simply trying to prevent carbon leakage, but China and the US will respond with tariff punishments without any criteria. Any future negotiations must start from that premise, or we will pay dearly for our innocence.
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