Brussels' curious cure for lack of EV competitiveness

The problem for the European Union's automobile industry is not too much Chinese competitiveness, but too little European competitiveness. Chinese manufacturers have spent years building scale in batteries, software, supply chains and electric platforms. In contrast, European automakers have had to contend with expensive energy, high production costs, regulatory uncertainty and the difficult migration from traditional combustion engines to electric drivetrains.

None of these problems can be solved by restricting Chinese electric vehicles' entry to the EU market.

Yet that is what the European Commission is proposing to do. According to the Financial Times, the commission wants China to "voluntarily" cap the share of Chinese hybrid vehicles at about 15 percent of the EU market or face higher tariffs.

There is an obvious problem with the word "voluntary". A choice made under the threat of higher tariffs is like a polite request to leave a party with the bouncer standing behind you. Renaming protectionism does not make it any less protectionism.

China's Ministry of Commerce says such "voluntary" export restrictions violate World Trade Organization rules, run against market-economy principles and undermine fair competition. Any settlement, it asserts, must balance the interests of both sides and comply with WTO rules and domestic law.

The EU proposal is also an odd sequel to the earlier attempt to settle its dispute over Chinese-made EVs. After months of negotiations, the EU agreed in January to guide Chinese EV makers seeking price undertakings as an alternative to countervailing duties. The commission promised objective and nondiscriminatory treatment under WTO rules. The arrangement showed that the two sides could manage a complex dispute without turning every disagreement into a tariff war.

Brussels should not now throw away that modest achievement. Restricting Chinese EVs is a policy for yesterday disguised as a defense of tomorrow.

EU carmakers have benefited enormously from the Chinese market. For decades European brands sold cars to Chinese consumers, expanded production in China and pocketed substantial profits there. China did not ask European companies to "voluntarily" surrender a percentage of the Chinese market to protect the domestic industry.

That some best-selling European car models in China have reduced their prices by more than 50 percent in recent months due to competition — and still make money — speaks volumes about the astronomical profits these companies have enjoyed in China over the past few decades.

The EU should focus on addressing the weaknesses in its auto industry that have undermined EU companies' competitiveness. This means more competitive batteries, cheaper energy, faster innovation, better charging infrastructure and a regulatory framework that gives manufacturers enough certainty to invest. Shielding EU companies from competition may preserve market share today, but it cannot ensure technological strengths tomorrow.

The EU's energy predicament makes this even more consequential. For European households facing high living costs, an affordable EV is not a geopolitical abstraction but a reasonable option to save household expenses. If Chinese EVs offer attractive combinations of price, range and technology, consumers have perfectly understandable reasons to buy them. Brussels may not like this reality, but it cannot legislate it away.

The forthcoming China-EU consultations in October should therefore focus on making existing agreements effective rather than manipulating market expectations with threats of new tariffs. The EU has already found that negotiated solutions within WTO rules are possible. It should not render the previous rounds of talks meaningless by replacing them with a quota dressed up as a "voluntary concession".

A simple test for EU industrial policy is whether it enhances EU companies' competitiveness or merely makes it harder for their competitors to sell. The first is competitiveness; the second is protectionism.

The EU has every right to compete with China. What it should not expect is for China to make that competition easier by "voluntarily" losing.