EU demands: Hope China will voluntarily restrict car exports to Europe

September 16, Strasbourg. Von der Leyen delivered his annual State of the Union address at the European Parliament and said something that had never appeared in previous State of the Union address--

Our current trade deficit with China is as high as 1 billion euros per day. This has reached a critical point.

She went on to say that this China impact is leading to the deindustrialization of European industrial zones. And put it bluntly: we will use all available means to restore the balance of EU-China relations. Listening well is important, but actions are more important.

36 hours later, the action came.

On September 17, the British "Financial Times" quoted three people familiar with the matter as reporting thatthe EU has asked China to voluntarily limit the share of hybrid vehicles manufactured in the EU market to about 15%-otherwise, it will face higher tariffs.

An EU official picked the words more clearly:

If they don't restrict exports to our markets, then we will restrict ourselves. This is about stopping deindustrialization. We must take action. This is about trade control.

This is not an ordinary trade friction. It changed to a style we were not familiar with. This article should explain three things clearly: where is the cut, why the word voluntary is used, and the most easily ignored caliber trap.

1. 36 hours: from the Union's State of the Union Address to the 15% red line

Set out the timeline first, because the rhythm itself is the signal.

On September 10, the Italian Automobile Parts Association (ANFIA) recommended that the market share of China brands in the EU should not exceed 8%. Once it exceeds, an 80% tariff will be imposed on the excess-and this recommendation covers both complete vehicles and parts.

On September 16, Von der Leyen delivered a State of the Union Address, clearly attributing deindustrialization to China's exports. This is thefirst time that a specific country has been blamed for the EU's deindustrialization. The wording is heavier than when it announced the launch of a countervailing investigation into electric vehicles against China in 2023.

On September 17, FT broke the news of the 15% red line. On the same day, EU Trade Commissioner Šefčovič had a video call with China's Minister of Commerce Wang Wentao; German Deputy Chancellor and Minister of Finance Klimbayer publicly expressed his support for taxing plug-in hybrid vehicles made in China at Volkswagen's headquarters in Wolfsburg.

On September 18, China responded. The spokesperson of the Ministry of Commerce used rare tough words:

The so-called voluntary export restrictions seriously violate WTO rules, violate the laws of the market economy and the principles of fair competition. China firmly opposes this.

Foreign Ministry Spokesperson Guo Jiakun added two key statements: The essence of China-EU economic and trade relations is mutual benefit and win-win, not zero-sum competition in which you lose and I win; at the same time, we will pay close attention to the EU's trends and take necessary measures to safeguard the legitimate rights and interests of China enterprises.

One detail must be pointed out here: the Ministry of Commerce responded to media reports that the EU hoped that China would voluntarily restrict it, but did not confirm that the EU had formally made the request. In other words, as of press time, this is stilla game at the level of media disclosure, and no official EU documents have been implemented.

The game is not over yet, but the direction is clear.

2. Where will this knife be cut?

First look at a set of numbers and you will understand why the EU is in a hurry.

In October 2024, the EU imposed a five-year final countervailing duty on pure electric vehicles made in China: an  additional tax burden ranging from 7.8% to 35.3% will be superimposed on the 10% basic tariff, with a combined maximum of approximately  45.3%.

Hybrid and plug-in hybrid vehicles were not included at the time, andonly a basic import tariff of 10% was applicable.

The market immediately responded to this 35 percentage point tax difference:

By understanding this table, you will understand the logic of the EU's actions.

Pure electricity was taxed, and the export structure was immediately switched from pure electricity to plug-in; in two years, the import volume increased  13 times, and the price was still going down. In the Brussels narrative, this is not product competitiveness, but tariff avoidance.

So the logic of this knife is actually four words: filling gaps.  Plug the hole where pure electricity tariffs are circumvented by the transfer of product structure.

3. The word voluntary is a disclaimer

Many people's first reaction is: Why doesn't the EU increase taxes itself and insist on China voluntarily?

Because the word voluntary is a disclaimer.

Voluntary export restrictions (VER) are a typical grey area measure under the WTO framework. They are explicitly prohibited and violate the principle of most-favored-nation treatment. The logic is straightforward:

The EU legislates its own tax increase

●→ Constitute an official trade measure → China can resort to the WTO dispute settlement mechanism. Previously, a complete set of investigation procedures had been completed in the countervailing case against Huachun Power, which took nearly a year; China was allowed to voluntarily restrict

●→ Formally not a measure of the EU → It is difficult for China to sue the EU to the WTO, and once China voluntarily agrees to the rationality of the restrictions.

Bottom line: It's illegal to do it yourself, and it's legal to let you do it.

This is also why the Ministry of Commerce responded by accurately targeting the five words of so-called voluntary export restrictions, rather than generally opposing tax increases.

But what is really worth pondering is what the EU wants.

The FT quoted people familiar with the EU's position and made it clear: the EU wants to repeat  the agreement reached with Japan in 1986. At that time, Japan agreed to impose export restrictions on automobiles, and this arrangement lasted until1999, about 13 years.

The answer given by history is not that Japanese cars have withdrawn from Europe, but that Toyota, Nissan and others have been forced to invest and build factories in Europe.

The EU's expectations for this voluntary restriction have also been clearly stated: it hopes to promote China car companies to increase investment in Europe or cooperate with local European manufacturers.

So, 15% is not the end point.

It is a pole that replaces the entire vehicle trade surplus with factories, jobs and tax bases in Europe.

[Disclaimer] Please refer to the official release for specific policy provisions and effective time.

Source: Xiong Yu, digital automobile export

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