Germany's Scholz hints at last-minute EV tariff deal with China

German Chancellor Olaf Scholz has told reporters, international business leaders, and politicians that talks to find the best deal on proposed European Union tariffs on Chinese-made electric vehicles (EVs) need to continue.

Speaking at the Berlin Global Dialogue (BGD), Chancellor Scholz said, "Negotiations with China on electric vehicles must continue…. We as the EU must not harm ourselves in trade conflicts."

EU member states will vote on the proposed tariffs in Brussels on Friday morning. It could see an additional 38 percent levied in import duties on EVs manufactured in China. 

Brussels argues that Beijing provides unfair subsidies to EV manufacturers that allow Chinese products to be sold at a price that undercuts those vehicles made in Europe.

German auto giant BMW's CEO Oliver Zipse has encouraged Chancellor Scholz and his coalition government to tread a diplomatic path to ensure that organizations like his do not get caught in the crossfire should China respond in kind. 

Could EU instigate a trade war?

German companies exported $29.08 billion worth of vehicles and parts to China last year alone, with imports of Chinese vehicles and parts into the country standing at $7.52 billion. 

Understandably, German manufacturers are concerned about blowback if the EU instigates a trade war. Scholz suggested in his address that quid pro quo solutions could still be found. 

He raised the prospect of trying to get China to voluntarily shift its status in the World Trade Organization, which Berlin feels gives Beijing an unfair advantage. 

"China should forgo the special treatment it enjoys as a developing nation in the WTO," he said.

Scholz dismissed the calls among a fringe group in his country who have spoken about "decoupling" the German economy from China. Trade between the two was worth over $280 billion in 2023 so disengagement would be an unrealistic option. 

Scholz, though, did say that he wanted Germany to be more self-sufficient in certain areas. 

"We must finally tackle the areas where cheap Chinese imports are actually harming our economy, for example steel," said the German leader.

What will Germany vote for?

This address to the BGD came after a short meeting between the German Chancellor and the French President Emanuel Macron, at the Chancellory in Berlin. 

Macron is one of the loudest voices supporting the tariffs on Chinese EVs. There was no indication from Chancellor Scholz about what, if anything, on EVs had been discussed with Macron. 

However, sources in Brussels suggest that the German side is set to abstain in Friday's vote to avoid another defeat, which would be added to the government's ever-increasing list of losses.

It has been a rough time for German Chancellor Olaf Scholz of late. His party, the Social Democrats (SPD), suffered two big defeats in local elections in Thuringia and Saxony last month. They only won in Brandenburg after the SPD candidate Dietmar Woidke, spent the whole campaign distancing himself from the national party and Scholz. 

Decision in sight?

To add insult to injury, Scholz and his family live in Potsdam, the Brandenburg state capital. 

His party has tanked in national polling, and despite some positive news on inflation in Germany dropping to 1.6 percent for September, the overall economic picture has been far from rosy. 

Tit-for-tat sanctions impacting an already struggling German auto industry could have serious ramifications for maintaining a very shaky coalition government between his center-left party, the Greens and the pro-business Free Democrats. 

On Monday, the door was left open for talks on EV tariffs even after the vote this week. 

The EU's Commission director-general in charge of trade defence Martin Lucas told the European parliament that talks with Chinese representatives were continuing daily ahead of the vote.

He also said that while a decision will be finalized by the end of this month, it is not the end of the line. 

"The conclusion of the investigation is not necessarily the end of consultations with China on finding a solution," he added. "The investigation has its own legal deadlines and we cannot miss them. Definite measures need to be in place by October 31."

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