**Europe**: Rising US tariffs on Chinese vehicles and components challenge European carmakers, disrupting supply chains and increasing costs. The evolving landscape demands closer EU-China collaboration and strategic investment to sustain competitiveness and advance electrification targets amid geopolitical tensions.
Europe’s automotive industry is facing mounting challenges amid escalating trade tensions between the United States and China, as newly imposed US tariffs on Chinese vehicles and automotive components disrupt established global supply chains. The measures have placed significant pressure on European car manufacturers, notably French giants Stellantis and Renault, who depend heavily on Chinese suppliers for parts and technology.
For over three decades, the global automotive sector has increasingly leveraged lower-cost production markets to reduce the overall price of vehicles, a trend that saw China emerge as a pivotal manufacturing hub. China’s car production surged from roughly 1 million units annually to 30 million, facilitating lower costs industry-wide. European carmakers embraced this model by forming joint ventures and manufacturing vehicles and components in China, which were then exported back to Europe and other markets.
However, the latest US tariffs, imposing a 10 percent duty on all imported cars and a steep 145 percent on vehicles manufactured in China, threaten to unravel this supply chain strategy. Bill Russo, CEO of Shanghai-based automotive industry observer Automobility, told RFI that the tariffs “create additional friction to the system, adding additional costs,” which undermines the competitiveness of domestic industries reliant on low-cost sourcing from China.
This disruption is not limited to a bilateral US-China dispute. Rather, it reverberates globally, escalating component costs for all carmakers engaged with Chinese suppliers, including European manufacturers. Russo explained, “By increasing costs of components, you’re increasing the price of the vehicle or decreasing margin. When you do that, you shrink your market.” The tariffs intersect with existing European Union trade policies, such as barriers on Chinese electric vehicles (EVs), creating a compound squeeze on European carmakers who face rising costs and narrowing competitive margins.
Interestingly, Chinese automakers themselves are not the primary casualties of these US tariffs. Russo noted that Chinese car manufacturers have “little direct effect” from the tariffs since they do not currently sell significant numbers of vehicles within the United States market. Instead, Chinese firms are redirecting their manufacturing and export focus to regions including Southeast Asia, the Middle East, and increasingly Europe, where companies like BYD, Geely, and newer entrants such as Xiaomi are establishing overseas factories to sidestep trade restrictions. “The unintended consequence of tariffs is it will accelerate the globalisation of the Chinese supply chain and automakers,” Russo remarked.
Europe’s position is particularly complex. Unlike the US, which has adopted what Russo describes as “a clear policy of decoupling from China,” Europe remains heavily reliant on Chinese supply chains, especially for critical technologies underpinning the electrification of transport—namely electric vehicles and battery production. China currently manufactures approximately one-third of the world’s cars and dominates three-quarters of global electric vehicle and battery output. This dependency creates a dilemma for European policymakers, who must balance protecting domestic industries with the practicalities of supply chain continuity crucial for meeting carbon neutrality and electrification targets.
“If the source for that efficient supply of materials and products is cut off from the European Union, you’ve got a big problem of fulfilling the vision of a carbon-free or an electrified transportation sector,” Russo cautioned.
The evolving automotive landscape has transformed vehicles into “smartphones on wheels,” integrating advanced hardware, software, and connectivity infrastructure. Russo suggested deeper collaboration between European and Chinese firms as a strategic response, beyond mere hardware supply. He highlighted Stellantis’s partnership with Chinese electric vehicle manufacturer Leapmotor as an example: “That’s a way … to get access to EVs that can be sold through their network.”
However, Russo emphasised the importance of building a comprehensive ecosystem encompassing software and infrastructure development, areas where China is advancing rapidly. He advocated for Europe to “flip the script” by encouraging Chinese investment in Europe to come with commitments to technology transfer and joint ventures, mirroring the approach China adopted in 1979 when it opened its markets to foreign investment under similar conditions. At that time, Western carmakers such as GM, Volkswagen, and Peugeot invested significantly and transferred technology via joint ventures with Chinese firms.
“Get China to invest and guide the investment toward forming partnerships, maybe joint ventures, maybe some other way of transferring knowledge. But don’t give it away. The tariffs shouldn’t be the end game,” Russo stated. “Tariffs are not the end of the conversation. They should be the beginning of the discussion around how to level the playing field.”
This analysis reflects the multifaceted pressures on Europe’s car industry amid shifting global trade dynamics, highlighting the intricate balance between geopolitical tensions, industrial strategy, and technological innovation shaping the future of mobility on the continent.
Source: Noah Wire Services
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