What has been hinted at for a long time has now become a reality: the European Union imposed additional duties on electric vehicles imported from China as of Wednesday (October 30th). Germany was against it and fought to the end to prevent it from happening.
These are so-called countervailing duties. It is argued that Chinese car manufacturers enjoy subsidies that give them a significant advantage in the European market. For Samina Sultan from the Institute of German Economy in Cologne, this is a kind of "red card" – a sign to the trading partner that it cannot behave in that way.
Such measures have not been introduced for the first time. China, like the US and many European countries, have often imposed special tariffs on imported products in the past. This was the case with solar panels, medical products, semiconductors, steel and aluminum, and even food products. The conflicts were often so sharp that they were called "trade wars".
China is no longer the "world factory" for cheap production
Nevertheless, the global division of labor brings significant advantages to all parties, says Ulrich Kater, chief economist of DekaBanka:
"During the nineties, we experienced the peak of the global economy. The entire world economy was one big factory. Everyone could produce where it was most profitable for his product and sell where there were interested buyers."
But a lot has changed in recent decades. China has advanced. It is no longer a "world factory" for cheap production, but has long since established itself as an important player in the global economy.
On the other hand, the Americans fear for their decades-long dominance. Donald Trump plays a key role in that process - during his first term as US president, he worked according to his slogan "America first", and the Biden administration continued and strengthened it.
Europeans, especially Germany as the export champion, found themselves "between two fires". "We are dependent on the US and China as trading partners," says Karsten Brzeski of ING. "We need raw materials from China, as well as photovoltaic installations. If we introduce high tariffs now, we know the Chinese will react, and that could have a negative impact on our economic growth."
Tariffs are bad for German manufacturers
The problem is that the world is becoming more and more divided - both economically and politically. On one side there are state-run and subsidized projects, while on the other side there is a relatively free market. There are fewer and fewer equal conditions for competition. Protectionist measures are becoming more common.
However, no measure is without consequences. When tariffs are imposed on electric vehicles imported from China, it also affects German car manufacturers, because they produce in China for the Chinese market - which is the largest in the world, and for world trade. Manufacturers of machines, plants, electrical engineering and the chemical industry have similar problems.
Economist Kater looks to the future with a certain amount of pessimism. While this may not lead to a complete collapse of welfare, "incremental changes will cause consumer goods to become more expensive, and some goods may be available only in certain parts of the world or become prohibitively expensive due to tariffs".
For many economists, the end of free trade is already a reality.
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