First glance

Making the most of Europe’s anti-subsidy probe into Chinese electric vehicles

The EU anti-subsidy investigation into EVs from China is a reminder of the need for a new EU green industrial policy strategy.

Publishing date: 15 September 2023
Authors: André Sapir Simone Tagliapietra Jeromin Zettelmeyer

European Commission president Ursula von der Leyen used her 13 September State of the Union speech to make an important announcement: the launch of an anti-subsidy investigation into electric vehicles coming from China.

The move will split opinions. Some will claim it is high time for the European Union to use its trade policy instruments more proactively to protect its industry against unfair Chinese competition. The EU does not want to repeat past failures, such as with the solar panels industry, the subject of a dispute about Chinese dumping.

But the new course will also attract condemnation and claims that the EU is entering a new, dangerous phase of protectionism. It will be argued that China has built a comparative advantage in electric vehicles and Europe should accept this reality, accept the benefits for its own consumers (cheap Chinese EVs for all!), accept the positive impacts on its own decarbonisation pathway, and redirect its own industry to areas where it has its own comparative advantages.

Both of these views have merits. On the one hand, anti-subsidy investigations are not uncommon in EU (or elsewhere) and fall within multilateral trade rules. On the other hand, this particular investigation is special for two reasons. First, it was not initiated by EU industry, but by the Commission, which is a rare situation. Second, it targets not a relatively small industry like optical fibre cables, but a multi-billion euro sector. These factors give this case far greater political profile than normal anti-subsidy investigations announced by the Commission.

Starting an anti-subsidy investigation does not automatically mean that the Commission will recommend the imposition of countervailing duties. In fact, since 2008, the Commission has launched 342 subsidy investigations against imports from China (out of a total of 431 investigations against imports from all third countries), of which 101 have resulted in no countervailing duties. The EV investigation will see the Commission start a process to understand whether China’s comparative advantage is genuine or artificially boosted by state subsidies. There are two possible outcomes.

If China’s comparative advantage is found to be genuine, then no EU countervailing duties will be due. Or if China’s comparative advantage is found to have been boosted artificially, EU countervailing duties may be imposed if two other conditions are met: the Commission must also find, first, that the Chinese subsidies have caused material injury to EU industry, and, second, that the impostition of duties is in the ‘EU interest’, which includes the interests of domestic industry, users and consumers.

Regardless of the outcome, the EU will need to further develop its own industrial policy to stimulate the development of a competitive EV industry and, more generally, a competitive clean tech ecosystem. This entails the development of a new EU green industrial policy strategy in the next institutional cycle.

This strategy should be able to leverage the single market in a credible manner, building a solid new governance framework and a new EU-level funding approach. The goals should be to preserve the power of the EU competition policy toolbox to avoid incumbency, protectionist and rent-seeking traps, and to ensure EU trade policy remains open. These horizontal framework conditions were essential for EU competitiveness in the past and are now more important than ever.

The Commission’s EV anti-subsidy investigation is not about moving away from Europe’s established model, which is based on economic efficiency and comparative advantage. It is really about assessing whether comparative advantage is real or not in the case of Chinese EVs. In the meantime, the EU, China and other big players including Brazil, India, Japan and the United States should sit around the table at the World Trade Organisation in Geneva and discuss how to deal with mounting subsidies for clean tech production.

About the authors

André Sapir

André Sapir, a Belgian citizen, is a Senior fellow at Bruegel. He is also University Professor at the Université libre de Bruxelles (ULB) and Research fellow of the London-based Centre for Economic Policy Research.

Between 1990 and 2004, he worked for the European Commission, first as Economic Advisor to the Director-General for Economic and Financial Affairs, and then as Principal Economic Advisor to President Prodi, also heading his Economic Advisory Group. In 2004, he published 'An Agenda for a Growing Europe', a report to the president of the Commission by a group of independent experts that is known as the Sapir report. After leaving the Commission, he first served as External Member of President Barroso’s Economic Advisory Group and then as Member of the General Board (and Chair of the Advisory Scientific Committee) of the European Systemic Risk Board based at the European Central Bank in Frankfurt.

André has written extensively on European integration, international trade and globalisation. He holds a PhD in economics from the Johns Hopkins University in Baltimore, where he worked under the supervision of Béla Balassa. He was elected Member of the Academia Europaea and of the Royal Academy of Belgium for Science and the Arts.
Simone Tagliapietra

Simone Tagliapietra is a Senior fellow at Bruegel. He is also a Professor of EU Energy and Climate Policy at The Johns Hopkins University - School of Advanced International Studies (SAIS) Europe.

His research focuses on the EU climate and energy policy and on the political economy of global decarbonisation. With a record of numerous policy and scientific publications, also in leading journals such as Nature and Science, he is the author of Global Energy Fundamentals (Cambridge University Press, 2020) and co-author of The Macroeconomics of Decarbonisation (Cambridge University Press, 2024).

His columns and policy work are widely published and cited in leading international media such as the BBC, CNN, Financial Times, The New York Times, The Economist, The Guardian, The Wall Street Journal, Süddeutsche Zeitung, Frankfurter Allgemeine Zeitung, Corriere della Sera, Le Monde, El Pais, and several others.

Simone also is a Member of the Board of Directors of the Clean Air Task Force (CATF). He holds a PhD in Institutions and Policies from Università Cattolica del Sacro Cuore. Born in the Dolomites in 1988, he speaks Italian, English and French.
Jeromin Zettelmeyer

Jeromin Zettelmeyer has been Director of Bruegel since September 2022. Born in Madrid in 1964, Jeromin was previously a Deputy Director of the Strategy and Policy Review Department of the International Monetary Fund (IMF). Prior to that, he was Dennis Weatherstone Senior Fellow (2019) and Senior Fellow (2016-19) at the Peterson Institute for International Economics, Director-General for Economic Policy at the German Federal Ministry for Economic Affairs and Energy (2014-16); Director of Research and Deputy Chief Economist at the European Bank for Reconstruction and Development (2008-2014), and an IMF staff member, where he worked in the Research, Western Hemisphere, and European II Departments (1994-2008).

Jeromin holds a Ph.D. in economics from MIT (1995) and an economics degree from the University of Bonn (1990). He is a Research Fellow in the International Macroeconomics Programme of the Centre for Economic Policy Research (CEPR), and a member of the CEPR’s Research and Policy Network on European economic architecture, which he helped found. He is also a member of CESIfo. He has published widely on topics including financial crises, sovereign debt, economic growth, transition to market, and Europe’s monetary union. His recent research interests include EMU economic architecture, sovereign debt, debt and climate, and the return of economic nationalism in advanced and emerging market countries.