The EU’s announcement of sharply increased tariffs on Chinese electric vehicle imports marks a major setback to President Xi Jinping’s efforts to persuade Brussels not to follow Washington’s increasingly hardline stance on trade.

The planned tariffs, which follow a months-long investigation into Chinese subsidies, were decided despite warnings from Beijing that imposing punitive measures would disrupt trade and economic co-operation.

The tariffs vary across companies but will be as high as 48 per cent for carmakers judged not to have co-operated with the EU probe. Though this is well below the 100 per cent imposed by the US last month, it poses a new barrier to a fast-growing market for Chinese vehicles.

Will the tariffs slow China’s EV push into Europe? Bill Russo, the former head of Chrysler in China and founder of Shanghai consultancy Automobility, said the tariffs would promote localisation of EV manufacturing in Europe and could be positive for competition.

Chinese companies have already begun investing heavily in making cars and batteries in Europe, including multibillion-dollar factories in China-friendly Hungary.

However, Russo said the EU tariff rates would do little to stand in the way of sales growth by BYD, the Chinese group that competes with Tesla for the title of the world’s biggest EV manufacturer.

“Will it slow them down? No. If you put that kind of tariff on top of the Chinese cost structure, it is still going to be better on cost than anything the European carmakers are currently capable of doing,” he said.

Citi analysts have estimated that even with the planned tariffs, BYD’s European export operations could still achieve a more than 8 per cent net margin at current production scale — more profitable than its domestic business.

“Even if Chinese EV brands sell their cars in Europe at a price 50 per cent higher than [their domestic retail prices], they’re still very competitive,” said Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight.

Xi has touted EVs alongside solar panels and batteries as pillars of Chinese high-tech manufacturing.

Cumulative Chinese state spending on the EV sector was more than $125bn between 2009 and 2021, according to estimates by the Center for Strategic and International Studies, a US think-tank. China’s industrial spending was by far the highest among the world’s top economies. The CSIS researchers said their figures were conservative and clouded by China’s lack of transparency.

State support has helped transform China into the world’s biggest producer of EVs, their batteries and almost all the critical components and technology that underpins the cars.

Xi visited Europe last month on a trip Chinese officials said was aimed in large part to ease growing tensions over trade.

On Wednesday, China denounced the planned EU tariffs as “blatant protectionism” that lacked a “factual and legal basis”.

Cui Dongshu, secretary-general of the China Passenger Car Association, said the EU’s move would restrict European consumers’ access to Chinese-produced “high-quality, low-price” goods. “This is an unfair treatment of [Chinese companies],” Cui said. “We believe China will come up with countermeasures against the EU.”

China, the bloc’s largest trading partner, exported €10bn of electric cars to the EU in 2023, according to analysts at Rhodium Group. This compares with total Chinese exports of $3.4tn, with about $500bn each going to the EU and US.

A Goldman report last month found that at the end of 2023, electric vehicles, solar cells and lithium-ion batteries together accounted for 4.5 per cent of total Chinese exports, up from 1 per cent in 2018. Europe was the biggest recipient, but the bank noted that most of the production was “for domestic consumption”.

Germany is leading a group of states opposing the tariffs for fear of retaliation by China. Chancellor Olaf Scholz has said such action “ultimately just makes everything more expensive, and everyone poorer”.

Without a deal, opponents of the tariffs would need 15 member states to vote against them before they are made definitive on November 2.

EU officials are confident they can keep enough governments on their side. “If we can’t act now we never will,” said one.

Additional reporting by Arjun Neil Alim