No 10 has left the door open to imposing tariffs on Chinese-made electric vehicles as part of the Made in Europe package, prompting a warning from Beijing that such a move would be “discriminatory”.
Downing Street said on Friday that it would “welcome the objective to have the UK included in the Industrial Accelerator Act” after France dropped its opposition to Britain joining the scheme.
The aim of the rules is to curb subsidised Chinese imports by giving EU-made products preferential treatment, but the UK and others such as Norway are worried about being left at a disadvantage if excluded from the scheme.
The price for joining would be aligning with the EU’s tariffs on Chinese EVs imposed by the bloc in 2024, according to a Franco-German proposal on Thursday night that said the UK would have to dynamically align with EU trade defence measures.
The Chinese embassy in London said it was “firmly opposed to any discriminatory practice involving tariff hikes or restrictive measures on Chinese products”.
“We have expressed serious concern to the UK side regarding the reports in question,” it said, adding that “trade protectionism runs counter to WTO rules and market principles”.
This week, the business secretary, Jonathan Reynolds, said he would not be coerced into aligning with the EU’s policy.
However, the government has been desperate to be included in the Made in Europe package, fearing billions of pounds of trade in the car industry could be lost if the UK is locked out of supply chains in the EU.
Asked whether the UK accepted it would have to put tariffs on Chinese-made vehicles in order to join Made in Europe, a No 10 spokesperson said it was “premature to speculate” on the terms of any deal with the bloc and there was “still a European process to run”.
They added: “But more broadly, on the principle, the UK obviously has its own trade policy and it keeps all tariffs under review. And we work closely with the British automotive sector to make sure that that approach reflects their best interests.”
Chinese EVs are increasingly popular, with BYD sales up 78% year on year in September, Chery up 660% and the lesser-known Changan up by more than 3,000% in terms of market share.
EU lawmakers are expected to finalise the Industrial Accelerator Act, known as Made in Europe legislation, by the end of the year or early 2027.
But MEPs have already tabled 5,100 amendments, including one embracing the UK and giving Andy Burnham time to secure the deal he wants.
Earlier this week the boss of Mercedes-Benz, Ola Källenius, who is also the president of the European car trade body ACEA, warned that locking the UK out of legislation would amount to a “deliberate choice” by EU leaders to “hurt” the car industry across the bloc.
According to the new Franco-German proposal, there would be “an opt-in to further include European partners who were part of the EU single market as of 1 January 2020”, which includes the UK and Norway.
This would be provided those third countries accepted “dynamic alignment on the EU’s conditions related to third countries’ investments and on relevant EU trade defence measures”.
Tariffs could help UK-based manufacturers by preventing cut-price Chinese models flooding the market but they could also push up prices for consumers and harm British manufacturers trying to sell vehicles to China in the case of an escalating trade war. About 80% of UK-made cars are exported, with more than half going to the EU and 6% to China.
Earlier on Thursday the trade minister, Anas Sarwar, hinted that the UK was minded to align on tariffs. He told Politico the UK and the EU must “work together and act in lockstep” to tackle China’s dominance in the automotive sector.
A car industry source said the EU “has recently shown that it is possible to have a dialogue with the Chinese and get some form of safeguarding in place” without retaliation.
The expansion of EV tariffs is opposed by China, which has in the past few months made what European Commission officials called “bloodcurdling threats” to launch a trade war over its latest plan to impose quotas on Chinese hybrid cars.
While quotas can be introduced within months under World Trade Organization rules, it could take over a year to impose tariffs on Chinese cars, with strict processes to be followed, starting with notification of an investigation and followed by evidence-gathering and sharing over alleged harms China might be causing to the British car industry.
Liam Byrne, the Labour chair of the parliamentary business committee, has said imposing tariffs on Chinese EVs would be “a small price to pay” to save the industry in both the UK and the EU.
At a conference in London on Thursday night, he said the UK “urgently needs” a new strategy on China to ensure that British and European manufacturing “does not die”.
Byrne, who has been leading an investigation into the UK’s position on China, was highly critical of the government’s approach, which he believes is naive and based on false hopes that China will change its export policy.
“Our China strategy is simply not where it needs to be. The UK urgently needs a coherent China strategy, which it does not have today,” he said.