The EU’s China dilemma: how to counter Beijing without alienating friends

In September, the Jaecoo 7, a budget SUV from China's Chery Automobile, became Britain's bestselling car, selling over 10,000 units. This marked a shift in British drivers' preferences towards cheaper Chinese cars. In fact, 23% of new cars purchased in Britain that month were Chinese models, with several electric and hybrid versions ranking highly. However, the growth of the Chinese car market in Europe soon became entangled in a broader trade dispute.

Britain was contemplating matching the EU's tariffs of up to 45% on Chinese-made electric vehicles in order to access European manufacturing subsidies. Brussels was also contemplating import restrictions on Chinese-made hybrids, including the plug-in version of the Jaecoo 7. If these measures were implemented, London might face pressure to follow suit.

The EU had long desired Britain to adopt similar EV tariffs, fearing the country would act as a conduit for cheap Chinese cars flooding the European market. Now, with its proposed Industrial Accelerator Act (IAA), the EU could potentially exert pressure on London to adopt tougher measures against Chinese car imports. Redeker, acting co-director of the Jacques Delors Centre, suggested the IAA could provide Brussels with leverage to compel Britain into a more stringent stance on Chinese car imports.

Nevertheless, concerns have arisen among European political groups and allies about whether the EU is inadvertently emulating the US policies it previously criticized by potentially penalizing trusted international partners. Kazutoshi Aikawa, Japan's ambassador to the EU, likened the law to US President Joe Biden's Inflation Reduction Act, which alienated Tokyo and Brussels alike.

The IAA would create rules enabling EU funds, public contracts, and other incentives to favor EU-made products in sectors such as EVs, steel, cement, and clean technology, while expediting permits for new industrial projects. The objective is to strengthen European manufacturing and diminish the bloc's dependence on foreign suppliers, primarily China.

However, this approach faces controversy, as it could disadvantage companies from countries like Britain, Japan, and South Korea unless exemptions are granted. This has sparked a heated debate over how far the EU should distance itself from other nations in its efforts to counter China's industrial dominance. Ignacio Garcia Bercero, a former top EU trade negotiator, emphasized the need for the bloc to be "extremely careful" not to undermine the value of free-trade agreements by isolating itself from trusted partners.