What EU tariffs will do to trade with China

Imports of Chinese electric vehicles to Europe would drop 25 percent if the continent imposed a 20 percent import tariff on vehicles from the Middle Kingdom, according to a report by a German think tank.

The Kiel Institute for the World Economy says in its new study that the tariffs would likely cut trade between the two partners by nearly $3.8 billion while reducing the number of Chinese EVs coming into the continent by about 125,000 vehicles.

Sales of European-made vehicles would likely increase by the same amount, the report said. The report comes amid growing tension between China and the EU ahead of Europe's decision on whether or not to follow the US and levy a tariff on Chinese-made EVs.

The European Commission has opened a number of trade probes against China on the grounds of anti-dumping and unfair subsidies, especially in the clean technology space. The next step will be informing exporters in China whether tariffs have been levied on EVs, and if so, how high. They will go into effect within a month.

However, experts have warned that tariffs on Chinese EVs are likely to increase the average selling prices of EVs in the continental market, slowing the bloc's transition to electric mobility.

Julian Hinz, a researcher at Kiel Institute, says a decrease in Chinese EV options doesn't mean that "European car manufacturers will fill the gap". Rather, he says, "Chinese manufacturers such as BYD could also meet local demand with new plants in Europe."

BYD, for example, plans to open a car factory in Hungary by 2026 and has said it will bring its $10,000 Seagull hatchback to Europe next year.

Europe's carmakers have announced plans to launch to cheaper EVs in the coming years. Volkswagen said it is working on a sub-€20,000 EV for launch in Europe. The EU is set to virtually end sales of cars with conventional engine by 2035.

Kiel's report does not take into account the possibility of Chinese retaliatory measures. The institute warned this should be expected, although the response itself isn't clear. China has indicated it is ready to impose counter tariffs of as much as 25 percent on imported European cars bearing large engines.