China considers response to European tariffs on electric vehicles without escalating trade tensions

China is likely to adopt targeted retaliation against the European Union after the bloc announced tariff increases on Chinese electric cars. This move by the EU to increase levies on Chinese vehicles could potentially lead to a trade war, but Beijing is seeking to avoid such a situation. This article will delve into China’s potential response to the EU’s actions and the implications it could have on their trade relations.

**China’s Response to EU Tariff Increases**
China is wary of a robust response to the EU’s tariff increases on Chinese electric cars, as it could backfire and result in a trade war. The Commerce Ministry and the chamber of commerce in the EU have criticized Brussels for their decision. There are concerns that aggressive tariffs by China could lead to further alignment against China by Western countries, going against President Xi Jinping’s efforts to encourage “strategic autonomy” in Europe.

**Predicted Retaliation by China**
Merics, a Berlin-based research institute focusing on China, predicts that China’s retaliation will likely focus on agricultural items like cheese and pork. Beijing has also initiated a probe into European liquor products like brandy, particularly targeting France, a major brandy exporter. Chinese firms have requested an anti-dumping investigation into pork imports from the EU. State-run media have hinted at imposing tariffs on imported cars with large engines, affecting German carmakers.

**Avoiding Overreaction**
China’s initial response to the EU’s tariff increases has been verbal condemnation, with the Ministry of Commerce demanding corrections and the Chinese Chamber of Commerce in the EU calling the move “protectionist.” Beijing is concerned about the EU’s actions and may escalate the issue by complaining to the World Trade Organization. However, there is still room for bilateral engagement and negotiation between China and the EU.

**Potential Impact on Trade Relations**
The efficiency of China’s carmakers means that they can still turn a profit despite the new tariffs. Chinese companies are looking to establish factories in Europe, which could minimize the impact of measures on imports. Retaliatory moves by China could be targeted at specific EU members or districts to apply pressure. The final decisions on tariffs will be made in a few months, providing an opportunity for further negotiation and coordination between the two sides.

**Future of China-EU Trade Relations**
Despite the potential for negotiated solutions, China is likely to retaliate against the EU’s tariff increases in the future. This could have implications for sectors like aviation and agriculture, as China seeks to maintain a balance between avoiding a trade war and protecting its interests. Both carrots and sticks will be deployed by China in response to the EU’s actions, as trade tensions between the two sides continue to escalate.

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