BYD electric cars waiting to be loaded onto a ship are seen stacked at the international container terminal of Taicang Port in Suzhou.

The EU has clinched last-ditch talks with Beijing over plans to impose higher tariffs on Chinese imports of electric cars amid fears of a looming tit-for-tat trade war.

Trade ministers from China and the European Commission agreed to start negotiations to settle a dispute over EU plans to raise tariffs on electric vehicle imports from China to up to 48pc.

The EU proposal is part of an anti-subsidy crackdown against China but threatens tit-for-tat retaliation and the deepening of tensions between the two economies.

EU trade commissioner Valdis Dombrovskis and Chinese commerce minister Wang Wentao agreed to further talks after a “candid and constructive” telephone call, EU trade spokesman Olof Gill said.

The move came after Germany’s economic minister Robert Habeck concluded a three-day visit to Beijing. Mr Habeck,  vice-chancellor in Chancellor Olaf Scholz’s coalition government, is the first major EU politician to visit China to seek a resolution.

Germany has the most to lose from the EU spat with China owing to its carmaking prowess.

The German automotive industry has been opposed to the EU plan amid fears China could impose counter-tariffs to hurt manufacturers such as BMW and Daimler.

The conciliatory tone suggests a de-escalation of tensions between the two sides, although Mr Habeck stressed it was early days.

“One has to be very careful now, this is a first step and many more will be necessary,” he said.

“But at least this is a first step that was not possible before. That’s why tonight is a good evening if we want to try to maintain a level playing field and avoid a tariff war.”

The EU has taken aim at China because of “unfair” state subsidies paid to Chinese car companies by the government.

EU foreign subsidy rules are designed to create a level playing field and ensure manufacturers from China do not gain a competitive advantage over European manufacturers.

US President Joe Biden has already hit Chinese EV imports with tariffs of 100pc, although Chinese cars are less common on US roads than EU countries.

China has attempted to drive a wedge between EU nations in retaliation for the EV tariffs, threatening industries that are important for particular EU states.

Last month it launched an anti-dumping investigation into pork belly, which is an important Spanish export. France has also been targeted with potential tariffs on brandy and cognac.

Diplomats from the EU and China are expected to meet in the next two weeks to discuss the subsidy clashes.

Mr Gill added: “The two sides agreed to engage on the basis of facts and in full respect of WTO rules.

“The EU side emphasised that any negotiated outcome to its investigation must be effective in addressing the injurious subsidisation. The two sides will continue to engage at all levels in the coming weeks.”

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EU and China set for talks on planned electric vehicle tariffs

China and the European Union have agreed to start talks on the planned imposition of tariffs on Chinese-made electric vehicles (EVs) being imported into the European market, senior officials of both sides said on Saturday.

Germany's Economy Minister Robert Habeck said he had been informed by EU commissioner Valdis Dombrovskis that there would be concrete negotiations on tariffs with China.

The confirmation came after China's commerce ministry said its head Wang Wentao, and Dombrovskis, executive vice president of the European Commission, had agreed to start consultations over the EU's anti-subsidy investigation into Chinese EVs.

"This is new and surprising in that it has not been possible to enter into a concrete negotiation timetable in the last few weeks," Habeck said in Shanghai.

He said it was a first step and many more will be necessary. "We are far from the end, but at least, it is a first step that was not possible before."

The minister had said earlier on Saturday that the European Union's door was open for discussions regarding EU tariffs on Chinese exports.

"What I suggested to my Chinese partners today is that the doors are open for discussions and I hope that this message was heard," he said in his first statement in Shanghai, after meetings with Chinese officials in Beijing.

Habeck's visit is the first by a senior European official since Brussels proposed hefty duties on imports of Chinese-made electric vehicles (EVs) to combat what the EU considers excessive subsidies.

Habeck said there is time for a dialogue between the EU and China on tariff issues before the duties come into full effect in November and that he believes in open markets but that markets require a level playing field.

Proven subsidies that are intended to increase the export advantages of companies can't be accepted, the minister said.

Another point of tension between Beijing and Berlin is China's support for Russia in its war in Ukraine. Habeck noted Chinese trade with Russia increased more than 40% last year.

Habeck said he had told Chinese officials that this was taking a toll on their economic relationship. "Circumventions of the sanctions imposed on Russia are not acceptable," he said, adding that technical goods produced in Europe should not end up on the battlefield via other countries.

TIME FOR TALKS

The EU's provisional duties of up to 38.1% on imported Chinese EVs are set to apply by July 4, with the investigation set to continue until Nov. 2, when definitive duties, typically for five years, could be imposed.

"This opens a phase where negotiations are possible, discussions are important and dialogue is needed," Habeck said.

Proposed EU tariffs on Chinese goods are not a "punishment", Habeck told Chinese officials earlier in Beijing. "It is important to understand that these are not punitive tariffs," he said in the first plenary session of a climate and transformation dialogue.

Countries such as the U.S., Brazil and Turkey had used punitive tariffs, but not the EU, he said. "Europe does things differently."

Habeck said the European Commission had for nine months examined in detail whether Chinese companies had benefited unfairly from subsidies.

Any countervailing duty measure that results from the EU review "is not a punishment", he said, adding that such measures were meant to compensate for the advantages granted to Chinese companies by Beijing.

Zheng Shanjie, chairman of China's National Development and Reform Commission, responded: "We will do everything to protect Chinese companies."

Proposed EU duties on Chinese-made EVs would hurt both sides, Zheng added. He told Habeck he hoped Germany would demonstrate leadership within the EU and "do the correct thing".

He also denied accusations of unfair subsidies, saying the development of China's new energy industry was the result of comprehensive advantages in technology, market and industry supply chains, fostered in fierce competition.

The industry's growth "is the result of competition, rather than subsidies, let alone unfair competition," Zheng said during the meeting.

After his meeting with Zheng, Habeck spoke with Chinese Commerce Minister Wang Wentao, who said he would discuss the tariffs with EU Trade Commissioner Valdis Dombrovskis on Saturday evening in a video conference.

"There's room for manoeuvre, there's room for discussion and I hope that this room for manoeuvre will be taken," Habeck said.

In case the negotiations didn't reach a deal, Chinese carmaker SAIC Group has designed an array of creative products in response to the threat of tariffs.

Shao Jingfeng, chief design officer of the SAIC Motor R&D Innovation Headquarters, released pictures on his Weibo social media account showing products such as skateboards, hoodies, sneakers, cups, umbrellas and table tennis paddles, mainly yellow and black in colour and emblazoned with the EU emblem and the figure "38.1" - a reference to the level of the EU's tariffs.

"What doesn't kill you makes you stronger," Shao wrote on Weibo. "Let us remember 38.1."

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China wants EU tariffs on EVs gone by July 4 as talks resume

Beijing wants the European Union to scrap its preliminary tariffs on Chinese electric vehicles by July 4, China's state-controlled Global Times reported, after an agreement by both sides to hold new trade talks.

Provisional EU duties of up to 38.1% on imported Chinese-made EVs are set to kick in by July 4 while the bloc investigates what the EU claims are excessive and unfair subsidies to Chinese EV makers.

China has repeatedly called on the EU to cancel its tariffs, expressing a willingness to negotiate. Beijing does not want to be embroiled in another tariff war, still stung by U.S. tariffs on its goods imposed by the Trump administration, but says it would take all steps to protect Chinese firms should one happen.

Both sides agreed to restart tariff talks after a call between EU Commissioner Valdis Dombrovskis and Chinese Commerce Minister Wang Wentao on Saturday during a visit to China by Germany's economy minister, who said the doors for discussion are "open".

The best outcome of the talks is that the EU scraps its tariff decision before July 4, Global Times reported late on Sunday, citing observers.

The EU's increasingly protectionist moves will trigger countermeasures from China, and an escalation in trade frictions would only lead to "lose-lose" results for both sides, the newspaper said.

The tariffs are set to be finalised on Nov. 2 at the end of the EU anti-subsidy investigation.

The Chinese commerce ministry did not immediately respond to a Reuters request for comment.

TRADE WAR?

EU trade policy has turned increasingly protective over concerns that China's production-focused development model could see it flooded with cheap goods as Chinese firms look to step up exports amid weak domestic demand.

China has rejected accusations of unfair subsidies or that it has an overcapacity problem, saying the development of China's EV industry has been the result of advantages in technology, market and industry supply chains.

"When European Commission President Von der Leyen announced she would investigate China's new energy vehicles... I had an intuitive feeling it was not only an economic issue but also a geopolitical issue," said Zhang Yansheng, chief research fellow at the China Center for International Economic Exchanges.

"Personally, I think it is unfair to start a tariff war by only taking into consideration the capacity utilisation rate and insufficient demand," he added.

Trade relations between the 27-strong bloc and the world's No. 2 economy took an abrupt turn for the worse when the European Parliament voted in May 2021 to freeze ratification of what would have been a landmark investment treaty because of tit-for-tat sanctions over allegations of human rights abuses in China's Xinjiang region.

Beijing and Brussels came to blows again that year when China downgraded diplomatic ties with Lithuania and told multinationals to sever relations with the Baltic state after Vilnius invited democratically governed Taiwan, which China claims as part of its territory, to open a representative office in the capital.

ARMED AND READY

Although Beijing is calling for talks, it has also indicated that it has retaliatory measures ready if the commission does not back down, and that it considers Brussels wholly responsible for the escalating tensions.

The Global Times, which first reported that China was considering opening a tit-for-tat anti-dumping investigation into European pork imports - which the commerce ministry announced last week it would undertake - has also teed up an anti-subsidy investigation into European dairy goods and tariffs on large-engined petrol cars.

Chinese authorities have dropped hints about possible retaliatory measures through state media commentaries and interviews with industry figures.

"It seems probable that Beijing will raise tariffs up to 25% for Europe-made cars with 2.5 or above litre engines," said Jacob Gunter, lead analyst at MERICS, a Berlin-based China studies institute.

"Pork and dairy are already on the table for Beijing, and likely more agricultural products will be threatened," he added. "On the EU side, there are a variety of ongoing investigations using the new toolkit that Brussels has assembled, so we should expect some sort of measures targeting distortions on (Chinese) products ranging from medical devices to airport security scanners to steel pipes."

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