As global automotive markets evolve, the rapid expansion of Chinese car manufacturers into international territories presents both opportunities and perilVarious regions view this expansion through different lenses, interpreting it either as a golden chance or as an existential threat.

A recent video featuring KSquared, a Canadian travel vlogger, showcases the captivating world of China's electric vehicles (EVs) during his visit to ShanghaiWith stunning designs, innovative functions, and an array of smart interaction features, KSquared expressed an enthusiastic desire to live within such a vehicle, underscoring the allure of Chinese automotive advancements.

This roughly thirty-minute video racked up an impressive 100,000 views on YouTube, eliciting comments from international viewers who were so taken by the showcased vehicles that several admitted to purchasing Chinese electric cars, quipping about evoking jealousy among their American friends.

A recent report by AlixPartners consulting indicates that Chinese automobile brands are expected to command a 21% share of the global market this year, with significant growth stemming from regions beyond China itself.

Conversely, many concerns have emerged regarding perceived “overcapacity” within the Chinese EV sector

In mid-May, the United States raised tariffs on imported electric vehicles from China from 25% to a staggering 100%. In alignment, the European Union announced temporary anti-subsidy duties on Chinese EVs, marking a significant step towards confrontation over trade practices and beliefs regarding fairness in competition.

During discussions, Wang Wentao, China's Minister of Commerce, held a video meeting with Valdis Dombrovskis from the EU to discuss the latter's anti-subsidy investigation into Chinese electric vehicles, signaling a potential diplomatic engagement aimed at resolving trade tensions.

Reports indicate that an informal poll conducted among EU governments shows a majority still weighing the pros and cons of escalating trade disputes with China

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As negotiations progress, they remain under keen observation for their implications on international trade relations.

"The most competitive in the world"

In recent years, the export of “new three items” - electric vehicles, lithium batteries, and photovoltaic products - from China has skyrocketedAccording to data from the General Administration of Customs, China's export of electric vehicles reached 1.773 million units in 2023, accounting for 33% of total exports and a remarkable growth of 67.1%.

Moreover, Chinese manufacturers are expanding beyond mere vehicle sales; they are actively investing in overseas manufacturing facilities

Notably, BYD plans to set up an electric vehicle manufacturing base in Szeged, Hungary, projected to generate thousands of local job opportunitiesSimilarly, Chery Automobile recently reactivated a factory in Barcelona, Spain, previously owned by Nissan, to produce electric vehicles.

Southeast Asia has become a fertile ground for Chinese automotive venturesIn November 2023, Changan Automobile broke ground on its manufacturing base in Thailand, set to commence production in 2025. In March, Nezha Cars began operations at its Thailand smart manufacturing plant, with an Indonesian facility starting local mass production in May.

In the realm of technology, the new wave of Chinese car manufacturers stands at the forefront globally, garnering recognition from overseas investment firms

In October 2023, Stellantis, one of the world's top five automotive multinationals, pledged €1.5 billion to become a strategic shareholder of Leap Motor, enhancing its access to European, Latin American, and Middle Eastern markets through efficient distribution channels.

Currently, China asserts itself as the largest and fastest-growing automotive market globallyAt the Geneva International Motor Show, Chinese manufacturers showcased vehicles equipped with advanced entertainment systems, accurate smart voice interactions, and luxury features like massage seats, demonstrating their commitment to quality and innovation.

In a glowing review, KSquared highlighted the massage function of the EV seats, expressing, “If I lived in China, I think I would reside in such a car

They are incredibly comfortable!”

Australian viewers echoed his sentiments, stating gratitude for learning about the advanced nature and competitive pricing of Chinese carsOne netizen even shared that they had acquired a top-spec BYD vehicle, exclaiming how fortunate they are to be able to buy Chinese vehicles in Australia while their American friends are “almost dying from jealousy.”

Analysts like Bernd Diepenseifen from KPMG note that the competitive strength of Chinese car manufacturers largely hinges on their lithium battery supply chainChina is undeniably in the leading position regarding production volume, innovation capabilities, and sales, establishing dominance in the global automotive landscape.

According to reports, it is anticipated that by 2030, Chinese automotive brands will hold a 33% share of the global market as they continue to expand into international markets.

In a recent earnings call, Elon Musk acknowledged the competitive nature of Chinese automotive players, recognizing their potential for substantial success outside their domestic market

However, he noted that this would be contingent upon the imposition of tariffs or trade barriers that could give traditional manufacturers an edge.

For traditional automakers to remain competitive, a reassessment of their development processes and speed is essentialMark Wakefield from AlixPartners highlighted that Chinese EV makers create new products in half the time of traditional automakers and benefit from a 35% cost advantage inherent to their “Made in China” label.

"Overcapacity" is a fallacy

The conversation surrounding tariffs and trade imbalances often fails to account for the numerous expenses piled onto importing vehicles, ranging from tariffs, value-added tax, and consumption tax, to transportation and local market certification costs

This reality partly explains why several manufacturers choose to establish operations overseas.

However, as the push for overseas operations grows, the prevailing narrative of “overcapacity” has generated considerable backlashThe United States, for instance, will implement a significant tax increase on electric vehicles imported from China, raising tariffs over four times, from 25% to 100% as of May 14, 2023.

Following suit, the European Union issued documents indicating that if a resolution with China is not reached, they intend to implement temporary tariffs on electric vehicles from July 4. Certain manufacturers like BYD and Geely face substantial tariffs, with rates as high as 38.1% for those not cooperating with investigations.

In Canada, discussions have started regarding potential measures targeting imports of Chinese electric vehicles, reflecting a growing concern over how tariff implementations could affect domestic markets and the availability of affordable transportation.

The World Bank previously highlighted how the electric vehicle discourse predominantly revolved around traditional markets in China, the United States, and Europe

Nevertheless, the rise of new narratives surrounding climate change and economic transitions is witnessing the participation of many developing countries in the EV sector.

Unfortunately, some emerging markets are also resorting to imposing tariffs against China, highlighting a trend that could compromise broader global cooperation in EV development.

In June 2023, Turkey announced a 40% additional import tariff on gasoline and hybrid vehicles from China, illustrating growing tensions in trade dynamicsIndonesia, as the world’s largest nickel producer, plans to impose tariffs on numerous Chinese goods, including essential elements for EV batteries, as the demand for nickel surges.

The International Energy Agency anticipated that by 2030, the global demand for electric vehicles will reach 45 million units, vastly outpacing last year's production levels from China

The chants of "overcapacity" from Western economies are increasingly viewed as a misrepresentation of actual market conditions.

Historically, the U.Shas exploited similar claims of “overcapacity” to hinder the growth of other nations’ industries, generating unfair trade agreements that ultimately stifled innovation and technological progress, causing economic slowdowns.

In the 1980s, the German Federal Ministry issued dire warnings against purchasing affordable Japanese products, raising local telecommunications costs and resulting in technological lagCurrent EU tariff proposals for Chinese EVs may reflect a similar backward approach, hindering innovation and competition.

The narrative of “overcapacity” effectively serves as a scapegoat, protecting entrenched interests while failing to foster necessary competitiveness and innovation within Europe’s own markets.

Christian Böllhoff, a German economist, depicted Europe as lagging significantly behind the U.S

and China in terms of economic growth and productivityHe advocated for a focus on Europe’s strengths, such as its leading research institutions and various market-driven companies.

Growing Opposition

According to data from the China Passenger Car Association, Europe accounted for 38% of the 1.203 million electric vehicles exported from China in 2023, exceeding all other regions significantlyThe proposed tariffs targeting Chinese EVs could ultimately undermine local consumer interests.

As KSquared expressed astonishment at the comfort of these vehicles, he was further overwhelmed by their pricingHe remarked, “I swear, we are getting ripped off when buying a car in North America... such prices leave me speechless

Whether you are in Canada, the U.S., or Europe... you are definitely getting ripped off.”

Reports from Kiel University predict that EU tariffs could reduce China's automotive exports by a quarter, driving up prices for electric vehicles significantly within EuropeThe main beneficiaries would likely be established manufacturers like Volkswagen, who would have additional time to rectify software issues and refine their vehicle offerings.

“This scenario benefits manufacturers but disadvantages consumers, who would face higher prices for lesser vehicles,” warned analysts.

For context, a top-tier BYD vehicle in Australia retails for under 60,000 AUD, while a Tesla with fewer features sells for around 80,000 AUD, exemplifying how tariffs might further exacerbate the situation in countries enforcing such measures.

Horst Lecher emphasized that the foundation of international trade lies in comparative advantages in pricing and quality

Ultimately, no company or consumer is compelled to purchase foreign goods, with purchasing decisions invariably influenced by rational economic considerationsIf everything were produced locally in Germany, costs would rise, adversely affecting the living standards of the German populace.

Even those benefitting from tariffs have raised their voices against such policiesMercedes-Benz and Stellantis both emphasized the importance of free trade in this context.

Stellantis affirmatively stated its opposition to measures that would fragment global trade, while BMW's CEO labeled them as misguided decisions.

Will Roberts, head of automotive research at Rho Motion, pointed out that European manufacturers remain reliant on Chinese markets, suggesting that diminished profits from China would only impair their effective transition to electric vehicles.

With Brexit shifting economic power towards France and Germany within the EU, strong opposition against tariff implementations on China has emerged from Germany, Sweden, and Hungary.

Hungary's Minister for European Affairs, János Móra, argued against blanket terms surrounding “economic security,” instead advocating for a framework centered around identifiable risks, warning that talk of “decoupling” might oversimplify complex global trade dynamics.

Chancellor Olaf Scholz of Germany articulated that isolationist and unlawful tariff barriers ultimately lead only to greater costs and impoverishment for all involved parties.

“In the long run, government interventions to shield local sectors from more innovative, efficacious foreign competitors only create an illusion