Divided Germany Fails to Stop EU Tariffs on Chinese EVs

By Philip Blenkinsop

BRUSSELS (Reuters) – German Chancellor Olaf Scholz’s rejection of EU tariffs on Chinese electric vehicles did not prevent other EU members from approving them, highlighting Berlin’s difficulties in steering EU policy.

Germany was one of only five EU countries to reject the tariffs amid pressure from domestic carmakers reliant on China for nearly a third of their sales, allowing the European Commission to advance anti-subsidy duties by month-end.

The situation contrasts sharply with events a decade ago when a flurry of discussions between China, then German Chancellor Angela Merkel, and José Manuel Barroso, then European Commission president, successfully halted EU tariffs on solar panels, ultimately reaching a minimum price agreement instead.

After 16 years under Merkel, during which Germany’s industry thrived and united the EU, a new, fractious three-party coalition is now leading an economy facing its second year of contraction, prioritizing domestic politics ahead of the upcoming, potentially challenging 2025 federal elections.

In Brussels, diplomats expressed frustration over the ongoing infighting within Germany’s coalition, claiming it undermines the influence of Europe’s largest economy and overall EU unity. Brussels plans to seek a compromise with Beijing over EV tariffs, but Germany’s position weakens its negotiating power.

Analysts from Eurointelligence stated that the division between Germany and the rest of the EU compromises the Commission’s ability to present a united front against foreign pressures on individual member countries.

A senior source from Germany’s foreign ministry, under the Green party’s leadership, emphasized the necessity for the EU to prevent Beijing from employing unfair, market-damaging practices, suggesting that tariffs should remain viable options.

The Federation of German Industries (BDI) suggested that while talks should continue, a cautious stance on trade protection might be appropriate if specific conditions are met, noting the geopolitical risks involved with close ties to China’s hybrid economy.

OUT OF STEP

This instance isn’t the first sign of Germany falling out of line with its EU partners. In March, the EU endorsed a law necessitating companies to audit their supply chains, despite strong opposition from Germany’s pro-business Free Democrats, leading to a German abstention.

Moreover, the German government’s resistance to Italian bank UniCredit’s move for a merger with Commerzbank has frustrated the European Central Bank (ECB) policymakers, especially given Germany’s professed support for establishing an EU banking union that likely necessitates cross-border banking mergers for effectiveness.

One ally for Scholz has emerged in Prime Minister Viktor Orban of Hungary, who criticized the EU tariffs on Chinese EVs as a significant setback for the European economy and German automotive sector. Orban remarked, “Germany and European industry can no longer convince the Commission to be reasonable. But then, who can?”

Despite his intentions, Orban is known more for obstructing EU policy than advancing it, contrasting with Berlin’s former role as the champion of EU unity.

Zach Meyers from the Centre for European Reform highlighted that the tariff dispute indicates Germany no longer leads EU trade policy, also noting France’s diminishing influence following the removal of French commissioner Thierry Breton by Commission President Ursula von der Leyen, which has limited French representation.

While the Commission aims to strengthen ties with the United States and reduce reliance on China, the EV case suggests that without robust Franco-German guidance, the Commission must proceed cautiously while adhering to international trade regulations to garner EU support.

Noah Barkin, a senior advisor at the Rhodium Group, mentioned that despite the Commission’s success regarding tariffs, formulating a coherent, critical approach towards China remains difficult without Germany’s support. He concluded that as long as short-term domestic priorities override broader concerns in Berlin, the Commission will struggle to advance its new foreign economic policy agenda.