China and Europe’s EV fight just stepped up a notch

• China said it plans to sue the European Union after the bloc cracked down on its EV giants.
• The EU imposed sweeping tariffs on Chinese EV companies, including BYD, last week.
• The measures have raised fears that China might retaliate by slapping its own tariffs on European automakers.

China is hitting back against Europe’s crackdown on its EV giants.

The Chinese commerce ministry said on Monday it would file a lawsuit with the World Trade Organisation (WTO) against the European Union’s tariffs on Chinese electric car companies.

The EU voted to impose sweeping tariffs on Chinese EV companies like BYD in October.

The new tariffs, which were finalized last week, will see BYD face a levy of 17%, with other automakers facing tariffs as high as 35.3% on top of an existing 10% tax.

A translated statement from China’s commerce ministry announcing the lawsuit said the tariffs lack “factual and legal basis” and violate WTO rules.

The Chinese government had previously requested a dispute consultation with the international body over the subsidies in August. A WTO official confirmed to Business Insider that the organization had received a request from China for consultations with the EU over the latter’s import taxes.

A European Commission spokesperson told BI the EU’s governing body was confident its anti-subsidy investigation was compliant with WTO rules.

“We are very confident of the WTO compatibility of our investigation and definitive measures.

“With this in mind, the Commission takes note of the request for WTO consultations lodged by China. We will study all the details and react to the Chinese authorities in due course,” the spokesperson said.

The EU’s tariffs have sparked fears that China, which has already opened probes into European brandy and cheese, may retaliate by imposing its own trade barriers on European automakers operating in the country.

China is a huge market for German carmakers like Volkswagen, BMW, and Mercedes, but they have been increasingly struggling in the country amid an onslaught from local rivals, who have taken market share from European automakers thanks to their lineup of cheap, high-tech EVs.

Some Chinese players are now expanding into Europe despite the European Union’s tariffs.

BYD is planning factories in Hungary and Turkey, while Tesla rivals Xpeng and Leapmotor have also expanded into new European markets in recent months.