AUTONEWS

Why China agrees to cut plug-in hybrid exports to Europe by over 50%?

The Chinese are known to be tough negotiators who defend their interests fiercely and only yield when they feel they have no other choice. This was the case with plug-in hybrid (PHEV) models—a category the European Union (EU) had seemingly overlooked when it initially imposed tariffs only on Chinese-made electric vehicles. However, following negotiations in Beijing with the European Trade Commissioner, the Chinese government agreed to cut its PHEV exports to Europe by more than half.

After the World Trade Organization identified illegal state subsidies for Chinese-made electric vehicles—findings mirrored by the European Commission’s own investigation—the EU mandated that Chinese automakers wishing to export their China-built EVs to Europe must pay an additional levy on top of the standard 10% import duty applied to all non-European goods entering the bloc. This special tariff was set to range from 7.8% to 35.3%, depending on the level of state aid received, bringing the total import tax to between 17.8% (for Tesla, which faced the lowest penalty) and 45.3% (for SAIC/MG and brands that did not cooperate with the EU investigation). As scrutiny of Chinese vehicles intensified, manufacturers quickly discovered a loophole in the regulations; the EU had apparently overlooked the fact that plug-in hybrid electric vehicles (PHEVs) would also pose a problem. Although they sell in lower volumes than pure electric vehicles, many European manufacturers—particularly German brands—rely heavily on them. As Chinese PHEV sales surged—even unseating the VW Tiguan from the top spot—German automakers sounded the alarm. Having previously lobbied to prevent tariffs on electric vehicles from skyrocketing to 100% (as happened in the US), they now demanded that Europe take action to prevent another instance of unfair competition.

Faced with pressure from Germany, the EU announced plans to engage the Chinese in talks to urge moderation before resorting to a new round of extra tariffs, with the primary goal of narrowing the EU's massive trade deficit with China. To the surprise of many, China yielded; negotiators announced an "understanding to moderate Chinese exports of plug-in hybrid and hybrid vehicles to European Union countries," aiming to cut these exports by more than half.

Adding to the positive news, European Trade Commissioner Maroš Šefčovič revealed that the talks also yielded an agreement regarding raw materials and rare earth elements—essential components for the magnets used in electric motors and the GPS systems found in everything from cars to missiles. The agreement secured by Šefčovič will now undergo review and ratification by EU member states, a process expected to proceed without issue.

He said that “by this step we are actually preventing several millions of car exports from China to the European Union.”

The two sides were seeking to resolve key factors behind China’s growing trade surplus, which hit 360 billion euros ($403 billion) last year.

China’s Commerce Ministry posted online that Chinese Commerce Minister Wang Wentao expressed concerns about the EU’s recent restrictive measures. He said that China is not the root of the EU’s problems but a partner in solving them.

The head of the European Automobile Manufacturers’ Association, Sigrid de Vries, said that the deal appears to avert further instability in the EU and “can help facilitate the transition to a new era of Chinese presence in the European market in an orderly way and this is in the long-term interests of all parties.”

Sefcovic said he will brief EU leaders meeting in Brussels next week and seek their approval.

“They would have to see that this is convincing enough to take the other steps,” he said. “We are in a situation that they (China) could put under the threat whole sectors in the European industry, literally thousands of jobs and the public opinion and the leaders clearly expect very fast action from our side.”

Sefcovic also said both sides reached understandings to further facilitate China’s export licensing for rare earths and permanent magnets, as well as to improve access to the Chinese market for various EU products through lower most-favored-nation tariffs, including car parts, olive oil and footwear, totaling almost 4 billion euros (about $4.5 billion) in current export value.

Growing tensions...China has been pushing for the EU to stop blocking Chinese imports of advanced computer chipmaking machines, restrictions imposed on national security grounds at Washington’s behest.

Earlier, Sefcovic had said the talks this week were the culmination of three months of intensive work. He had set an October deadline for meaningful results on trade rebalancing.

Earlier in the week, the Chinese Commerce Ministry issued a statement urging the EU to avoid protectionist measures, warning that such moves could backfire.

Trade tensions have grown in recent months, with both sides imposing or considering curbs on each other’s imports.

The EU has moved to limit imports of Chinese-made electric vehicles and EV batteries and enacted measures to protect the European steel industry. It also is limiting duty-free imports of e-commerce small parcels, essentially targeting Chinese fast fashion firms.

Last week, China launched an anti-dumping investigation into imports from the EU of p-nitrotoluene, a chemical compound used in dyes and pharmaceuticals.

Chinese officials and businesses have raised concerns over reports some EU members are pushing for new measures to protect local industries.

China had a global trade surplus exceeding $1 trillion last year...Worries over surging Chinese exports to Europe and other parts of the world in what some are calling a China shock 2.0 have deepened as the U.S., especially since U.S. President Donald Trump returned to the White House, has raised tariffs and enacted other measures to try to reduce its own huge trade deficit with Beijing.

Despite the backlash from some of its trading partners, China’s global trade surplus hit $1.2 trillion in 2025 and is forecast to surpass $1 trillion again this year.

The EU’s trade deficit with China widened to 103.3 billion euros (about $116 billion) in the second quarter, as imports rose to 153.6 billion euros ($172 billion), while European exports to China climbed to 50.3 billion euros ($56 billion), according to EU statistics.

And on Wednesday, Germany blocked the sale of a major logistics firm in the port of Hamburg to the state-owned Chinese shipping behemoth Cosco over security concerns.

“As Europe’s largest economy, Germany welcomes foreign investment. At the same time, some investments can endanger the country’s security,” the German economic ministry said in a statement. “The acquisition would have deepened dependencies and jeopardized the resilience of supply chains in Germany and the EU.”