The recent decision by the European Union to launch an investigation into China’s subsidies for electric vehicles (EVs) threatens to open a new front in the trade war that would be damaging to both sides. This decision, which was announced by European Commission president Ursula von der Leyen in her State of the Union address on Sept 13, comes after a surge in Chinese shipments of EVs to the EU in recent years.

Although the share of Chinese EVs was only about 8 per cent in 2022, it has grown rapidly, from around 1 per cent in 2020, and is projected to rise to 15 per cent by 2025. For the EU, where the car industry is one of the biggest employers and accounts for 10 per cent of manufacturing activity, the prospect of Chinese EV brands displacing their European counterparts is considered a serious threat to its slow-growing economy, which is already suffering from supply chain disruptions and the war in Ukraine. Ms von der Leyen alleged that Chinese EV prices are “kept artificially low by huge state subsidies”, adding that Europe is “open to competition but not to a race to the bottom”. And while it is true that China provides generous subsidies for EVs and hybrid vehicles, so does the EU.