UK car industry faces ‘difficult trade-off’ between Chinese and EU markets

The UK car industry finds itself in a challenging position, caught between two significant trade markets: China and the European Union. British manufacturers are struggling to balance the advantages of both markets while preparing for potential trade measures that could hinder UK exports to the EU. Currently, the UK is the only major market that does not impose import taxes on Chinese vehicles, unlike the US, which has largely excluded Chinese cars, and the EU, which imposes duties of up to 45%.

EU officials have warned the UK's Business Secretary, Jonathan Reynolds, that if the UK does not introduce tariffs on cheap Chinese vehicles, the European Commission will retaliate with protectionist measures. These measures could adversely affect British carmakers, who rely heavily on the EU market, which accounts for 58% of UK car exports in the first half of the year, compared to just 4% for China.

Critics argue that imposing tariffs on Chinese vehicles could lead to reciprocation from Chinese manufacturers, negatively impacting sales in China and raising prices for British consumers. Smaller manufacturers, such as Chery, which is in talks to build cars at Nissan's Sunderland plant, are also concerned that tariffs could deter further investment in the UK.

Emily Sawicz, a consultant from RSM UK, emphasizes that the UK cannot afford to oscillate indefinitely between these two markets. Chinese investment is seen as a lifeline for carmakers, while access to Europe is deemed crucial for smaller manufacturers. The absence of tariffs could result in UK suppliers becoming increasingly marginalized in European opportunities.

Industry data reveals that Chinese brands, such as BYD, Omoda, and Jaecoo, have more than tripled their market share in the UK's new car market within the first eight months of 2026, comprising 12% of sales. This surge in Chinese brand presence has been driven by a growing demand for electric vehicles and competitive pricing. British new car registrations experienced a 12% increase in the year to September, the strongest annual growth since 2017, primarily fueled by electric vehicle and Chinese brand sales.

The European Commission's "made in Europe" rules, which limit subsidies, tax breaks, and public procurement contracts to vehicles produced within the EU, pose a severe threat to British car production. The EU's dominance in the UK market underscores the importance of addressing this issue. SMMT Chief Executive, Mike Hawes, warns that excluding British-produced vehicles from the EU market would harm both parties mutually.

Nissan's Chairman in Europe, Massimiliano Messina, draws a parallel between Chinese and EU tariffs, stating that Europe cannot allow Chinese vehicles to flood the market through the UK.

Chery's Deputy UK Chief, Victor Zhang, refutes claims that tariffs would significantly impact their business, stating that they primarily deal with super-hybrids and would not change their investment decisions. In response to EU's recent tariffs on Chinese EVs in 2024, Chinese EV sales have declined, demonstrating the potential consequences of trade barriers.

Some industry experts argue that tariffs could protect UK manufacturers whose market share is being eroded by Chinese companies. Former Vauxhall Chair, Tim Tozer, urges the implementation of tariffs to prevent the UK's car sector from "atrophying," emphasizing that the industry is on the brink of collapse. He attributes this urgency to the rising nationalism among buyers who prefer domestic brands that they perceive as "bloody good."