Within weeks, nearly all of Britain’s closest allies will have hit Chinese electric vehicles (EVs) with crippling trade tariffs.
The import duties being imposed by the United States, Canada and the European Union – as high as 100pc in some cases – are designed to stop China flooding Western markets with ultra-cheap cars that undermine domestic manufacturers.
Joe Biden, the US president, was first out of the traps in May, followed by the EU in July. Canada is preparing to impose its own duties from October.
All have raised concerns about unfair subsidies allegedly handed to China’s EV industry by Beijing, while President Biden has warned the cars – which he likened to “smartphones on wheels” – could be used to spy on citizens and infrastructure.
Britain is conspicuously absent from the crackdown. Both the Conservative and the new Labour governments have declined to follow much of the rest of the West in targeting Chinese EVs.
The decision has prompted warnings that the UK has made itself a prime target for “dumping” by manufacturers, as cut-throat competition at home drives Chinese brands to seek more profitable sales abroad.
Despite this, Jonathan Reynolds, the Business Secretary, and Rachel Reeves, the Chancellor, have adopted a mollifying tone. Why?
According to Whitehall and industry sources, the answer boils down to two key factors: the defence of British car exports to China and the Government’s need to hit its own electric car sales targets.
First, despite broader worries about unfair competition, many British carmakers are more concerned about the high-end vehicles they sell to China rather than domestic sales.
A burgeoning cohort of wealthy and middle-class customers in the country account for 20pc of Jaguar Land Rover’s annual sales, while Aston Martin, Bentley, Lotus and McLaren also sell large numbers of supercars and luxury vehicles there.
JLR and Aston – along with others – are understood to have lobbied the UK Government over this point, amid concerns that any move to hit Chinese cars with tariffs will be met with swift retribution from Beijing.
Reynolds told The Telegraph in July: “One thing I’m very sensitive to is that the entire structure of UK automotive production is export-oriented – we export 80pc of what we make.”
By standing apart, the industry hopes Britain will escape any tit-for-tat measures.
In response to EU tariffs on Chinese manufacturers SAIC, Geely and BYD, Beijing has threatened to raise duties on imports of European large-engined cars, as well as other Continental specialities such as cheese, pork and brandy.
This brewing trade war is already causing disquiet among EU member states at the sharp end of Beijing’s retribution.
Germany – home to the bloc’s biggest car companies – has called for a rethink, while Spanish prime minister Pedro Sanchez said on Wednesday: “I have to be blunt and frank with you that we need to reconsider.” (Spain is the second-biggest car manufacturer in the EU.)
In the post-Brexit era, the British government agency tasked with making any trade interventions is the euphemistically named Trade Remedies Authority.
Yet any investigation must be triggered by either a complaint from a carmaker or a direct request from Reynolds.
No complaint from a carmaker has yet been received, a Whitehall source says. They also claim the Business Secretary is not under any pressure from the industry – or Britain’s closest international allies – to intervene personally.
“It’s something that’s under constant review,” the source adds. “But we want to support our domestic car industry, and the industry is telling us that tariffs are not something they want.
“You don’t want to shoot yourself in the foot for no discernable benefit.”
The situation is also politically helpful to Labour, which inherited a set of highly ambitious electric car sales targets from the Conservatives and has suggested it will make them even more far-reaching.
Under the so-called zero emission vehicle (ZEV) mandate, at least 22pc of the cars sold by manufacturers in Britain must be electric from this year, with the requirement ratcheting up annually until it reaches 80pc in 2030.
Labour has also vowed to toughen the process by banning the sale of new petrol and diesel cars in 2030.
With demand for EVs faltering as consumers baulk at high prices, the arrival of cheaper Chinese cars may provide a handy way for the Government to meet its goals.
Alongside EU tariffs, the ZEV mandate will turn the UK into a magnet for Chinese brands, which sell much higher proportions of EVs than their Western counterparts, according to Matthias Schmidt, founder of consultancy Schmidt Automotive.
“The UK remains an extremely profitable market for the Chinese manufacturers, whereas margins in the European Union will effectively be in the single digits or close to zero after tariffs,” says Schmidt.
Not only will Chinese manufacturers benefit from sales in Britain, they can also make money from the way the ZEV mandate works.
The mandate punishes carmakers with £15,000 fines for every petrol and diesel they sell over a set limit. However, those who exceed their targets are handed carbon “credits” that can be sold to rivals who have fallen short.
“The ZEV mandate is a huge tailwind for them,” says Schmidt. “The Chinese can effectively clean up when it comes to regulatory credits.”
Against that backdrop, the MG4, produced by Shanghai-headquartered SAIC, has already become one of the UK’s best-selling EVs. Rival BYD is starting to open showrooms around the country.
The pricing strategy that will be adopted by the Chinese remains to be seen, says Schmidt. The cars are cheap but could yet get cheaper: these vehicles are still dearer in the West than in their home market, suggesting more discounting could be on the way.
“For the Chinese, the ball is in their court,” Schmidt says. “They can be aggressive, cut prices and go after volume, or have relatively conservative volumes with higher prices and command very high profit margins.”
By comparison, most major Western manufacturers – from Volkswagen to Ford – have effectively vacated the affordable segment of the market when it comes to EVs. There is no battery-power equivalent to the best-selling Ford Fiesta or VW Polo.
This is because Western manufacturers need to invest billions into electrification and are trying to drive sales towards higher-margin vehicles that will yield bigger profits.
However, Robert Forrester, the chief executive of dealership network Vertu Motors, warns that European manufacturers would be unwise to believe Britons will remain loyal to trusted brands.
In fact, they have shown themselves willing to embrace a host of foreign brands through the decades, be they American, German, French, Japanese or Korean.
“Consumers are very focused on value for money,” Forrester, who has just partnered with BYD, says. “If the Chinese can produce price-competitive cars with great technology and great quality, they will take market share in the UK.”
Back in Westminster, not everyone is happy about the impending Chinese invasion.
Kemi Badenoch, the shadow housing secretary, has accused Beijing of trying to drive “other nations’ industries out of business” through unfair competition – despite having taken no actions on tariffs when she was business secretary.
“It’s not just competitiveness on production cost, it’s also that they don’t play by the rules,” she said in a recent article for The Telegraph.
Tom Tugendhat, the shadow security minister who is vying with Badenoch for the Tory leadership, also has security concerns.
“These are not just cars; they are mobile intelligence-gathering machines,” he says. “As we all know, modern EVs are packed with sensors that collect all kinds of data about a vehicle’s surroundings, yet there is currently no clarity on how this data is used, if it is stored, or whether it is sent to China.
“We all want to see the price of electric vehicles come down, and fair competition is key to achieving this. However, what we are witnessing is yet another example of China using trade-distorting subsidies to gain control of key industries of the future.
“The first duty of any government is to keep the nation safe, and by not introducing tariffs on Chinese EVs like our allies, Labour isn’t showing the leadership the country deserves.”
On Wednesday, Mr Reynolds met with top US trade negotiator Katherine Tai. Tariffs may well have been on the agenda, but ministers look set to stick to their guns.
“We have been clear that any decision has to be the right one for our domestic automotive industry,” a spokesman for the Department for Business and Trade said.
If it leads to more affordable electric cars, consumers may end up thanking them.
2024-09-12T08:04:42Z dg43tfdfdgfd