It’s finally here. We knew it was coming months ago. The EU Commission has implemented new tariffs to punish China’s heavy subsidization of its EV industry. These tariffs were set in motion last year when the EU launched an investigation into China’s auto industry.

The European Union is to investigate Chinese subsidies for electric vehicles. This was announced by the top official of the bloc on Wednesday. It highlights Europe’s increasing industrial and geopolitical rivalry with China.

Speaking in Strasbourg, France, Ursula von der Leyen said, “Europe is open to competition, but not a race down the bottom.” “We must defend against unfair practices .”…

Ms. von der Leyen stated that the European Union views the electric vehicle industry as “a vital industry for the clean economies, with enormous potential for Europe.” The global market is now inundated with cheaper Chinese electric vehicles. Their price is artificially kept low by massive state subsidies.

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Yesterday, the EU announced that the investigation was complete. The tariffs ranged from 17% up to 45%. The union disagreed about the tariffs despite the decision.

The European Commission, just over a month after it launched its anti-subsidy investigation, will impose additional tariffs that range from 7.8% for Tesla up to 35.3% in China for SAIC. This is on top of the EU standard 10% import duty for cars.

Germany, EU’s largest economy and major auto producer, opposed tariffs during a vote held earlier this month. Ten EU members supported them, five voted in opposition and 12 abstained.

German automakers have strongly criticized EU measures, knowing that higher Chinese import duties for large-engine gasoline cars would be the most damaging to them.

Since years, German automakers have been selling cars to China, the largest automobile market in the world. They are now worried that China may retaliate with its own tariffs. Volkswagen has said it could be forced to close its factories for the very first time.

Volkswagen may close up to three factories in Germany, laying off thousands of employees as it looks to regain an edge in Europe in the face of slumping sales and increasing competition from China. This is according to the top employee representative of the company.

Closures will be first in 87 years of history for the largest employer in Germany, and a blow to an economy that is already stagnant.

The automotive industry is Germany’s largest sector, with a contribution of 564 billion euro, or 610 billion dollars, to its economy.

The German Association of the Automotive Industry (a trade association) says that the industry is heavily dependent on exports. In China, German automakers sold around 4.3 millions cars in 2021.

VW has no other option. China will likely respond to the EU tariffs with a similar response, which will harm their Chinese sales. The truth is, their sales in China aren’t very good lately.

Volkswagen reported a 60% decline in profits due to a drop in sales in China. The carmaker also highlighted the challenges it faces, as it prepares for the first-ever closure of its German factories.

As interest rates rise, carmakers are experiencing a slump in demand for new models. BMW and Mercedes-Benz, two German rivals of VW’s, have also reported a drop in demand from China. Aston Martin, a British sportscar manufacturer, confirmed Wednesday that “the weak macroeconomic climate in China” is dragging them back.

VW’s China-wide sales fell 12% overall this year. Tariffs will speed up this decline when China responds. On the other hand the tariffs could protect VW’s domestic business from being dramatically undermined by lower-cost Chinese imports. VW’s domestic car sales fell 1% in this year. It could have been worse. VW would have lost business either way. This way, they could at least retain their core business in the home.

In China, EVs (including hybrids) are now outselling gasoline-powered cars. This is a problem because European manufacturers don’t produce small, inexpensive EVs to compete with Chinese models. The European manufacturers are not positioned well to compete in the new market. China is well positioned for success, to the point that the US and Canada, as well as the EU, have put in place steep tariffs to avoid a bloodbath among domestic automakers.