The forthcoming decision to increase EU tariffs on selected Chinese electric vehicles is unlikely to systematically benefit the European car industry and might even cause considerable damage. Instead, enhancing its competitiveness and resilience would yield much greater benefits.
In recent years, competition from China in the automotive sector, specifically in electric vehicles (EVs), has significantly increased. There has been a marked increase in the supply to their domestic consumer market and rapid growth in Chinese EV exports to the EU. Consequently, the market share of incumbent European manufacturers is declining in both the Chinese and their own domestic markets.
Slovakia has long had a vested interest in the success of car companies within the EU, especially those that manufacture domestically. Since the era of socialist planning, which led to the construction of extensive production capacities near Bratislava (eventually underused, as only the Skoda Garde model was produced in full, despite original plans to manufacture cars from politically friendly Western brands), the foundations for future success were laid. After the Velvet Revolution, the German giant VW established a joint venture with the Bratislava plant, which it later acquired in full in the late 1990s. A series of subsequent investments from Germany, France, South Korea, Great Britain, and now also China have significantly contributed to Slovakia’s rapid GDP growth in the early 21st century, such as the 10.8% increase in 2007, improving also the standard of living.
Today, Slovakia is the world leader in the number of cars produced per capita. The automotive industry contributes over 41% to Slovakia’s exports and more than 10% to the country’s GDP. There is a robust network of about 400 (sub)suppliers in the country, and the entire ecosystem employs more than a quarter of a million people. Moreover, other sectors of the national economy and industry are also heavily tied to the local auto industry.
It is thus clear that ensuring a successful future—competitive and resilient—for the automotive industry should be one of Slovakia’s key priorities. The impacts are not only economic but also political and security-related, with implications for prosperity, social peace, stability, but also individual freedoms and rights.
According to our recent study, four dynamics, in particular, threaten such a successful future: the widespread regulated transition to electromobility, resulting de facto from EU regulations; the race to subsidise electromobility, especially in the US and China; the volatility of supply chains for key components, raw materials, or minerals relevant to EV production, with a special concentration in China; and finally, the market competition with incoming (Chinese) EVs, as well as in technologies and innovations such as batteries for EVs, where Slovakia and the EU are lagging behind Asian economies such as China. Moreover, the aforementioned interdependence with China also applies to exports from Slovak factories—not only directly but also indirectly, i.e., through the export of products and components that, for example, go to Germany, but from there, the final product ends up being sold in the Chinese market.
Tariffs as a short-term response – at best
In this context, the EU plans to announce an increase in tariffs on selected Chinese EVs in early June. According to the Commission, these tariffs address the threat posed to the EU common market by artificially low prices resulting from public subsidies. Additionally, unlike the EU, China excels in concentrated and integrated supply and value chains.
However, this solution is only a very weak patch for the problems and challenges faced by the industry, as mentioned above, and carries significant risks.
Firstly, for a tariff increase to have a real effect—considering the current large margins Chinese producers enjoy in the European market—it is estimated that tariffs would need to rise from the current 10% to at least 50%, which I personally consider highly unlikely. Secondly, even if tariffs were increased to such an extent, it would not systematically improve the competitiveness and resilience of the European industry. In other words, an industry sheltered by economic protectionism will be less motivated to develop and produce better products for the consumer. Moreover, China could decide to manufacture its cars in the EU. Thirdly, and perhaps most importantly, China might react by raising import tariffs on cars and other products from the EU. Unlike the US, the European car industry is deeply intertwined with China on many levels—this includes exports, as well as capital and technology links. Any significant reduction in the openness of the Chinese market to European manufacturers could drastically impact their profitability—where there is no profit, there is no job retention, no expansion of production, no investment in development and innovation, and consequently, no investment in the expected transition to electromobility.
What to do, then?
First of all, both legislatively and culturally, the automotive industry should be considered very important and valuable, and thus a priority in Slovakia and the EU. Without such an embedded understanding of it, any strategies will remain largely theoretical, rendering the industry a paper tiger. Furthermore, a stronger link should be re-established between the private and public spheres concerning this sector; in other words, both large conglomerates and SMEs in the industry should have an important role in the preparation and development of regulations and legislation. Since the Dieselgate scandal, the industry’s political influence has waned, often to the benefit of environmental groups, activists, Green politicians and regulators.
More specific recommendations could include accelerating the construction of charging infrastructure, which is essential for diversifying propulsion systems and advancing electromobility, whether en masse or partially. There should be increased pressure to rethink energy policies, particularly in countries like Germany, where energy prices are among the highest in the EU compared to global competitors. Curricula in both secondary vocational schools and universities should be more flexible and adaptable to prepare a skilled workforce with relevant knowledge for the future in the industry, including areas such as blockchain technology. Additionally, the private sector should receive support through retraining programs, and in Slovakia, the number of so-called national visas for targeted skilled workers from abroad should be increased. The creation of public-private automotive innovation clusters should be promoted. There should also be a thorough legislative review of the pace and timeframes set for decarbonisation in the EU, including emission permits and trading schemes, taxonomies, ESG standards, and the categorisation of zero-emission vehicles. Existing regulatory frameworks should be unified, always clear, and free from excessive bureaucratic burdens that disproportionately affect competition globally. Regulations should be evaluated based on specific results and reflect the state of the market and consumer sentiments and trends. The principle of technological neutrality should be respected in practice, not by unnecessarily wasting or duplicating resources, but rather by flexibly reflecting consumer sentiment and creating a favourable, competitive environment that fosters investment in innovations and technologies. These should have the potential to make a gradual and realistic contribution to achieving the ultimate goal: reducing emissions and increasing long-term sustainability with regard to the entire complex cycle of production, use, and recycling of a given product. This may include not only EV batteries, software, and electric motors but also hybrid technologies or the next generation of internal combustion engines.
Utilising a realistic trade and investment policy through tools such as free trade agreements or the Global Gateway program, the EU can establish mutually beneficial bilateral relationships with partners in regions like South America, Africa, or Southeast Asia. These agreements should also aim to secure critical raw materials for the automotive industry.
The EU could also consider legislation that would favour the domestic industry, making it a preferred option for consumers to buy products developed and produced in the EU.
The aspect of individual and national security should not be overlooked either. Modern cars, especially EVs, present a series of potential risks concerning, for instance, protection of personal freedom of movement, private property, or privacy and data security. A series of existing or forthcoming EU legislative regulations (GDPR, Data Act, Digital Markets Act, Digital Services Act, or AI Act) can be utilised to preserve the credibility and with it also the competitiveness of established car companies (especially in contrast with their Chinese competition), while maintaining strict protection of the intellectual property of developers and manufacturers. For Slovakia, these trends serve as a wake-up call—the relevant national legislation and practices are still in their infancy, and it is always better to be prepared than to be caught off guard in the future.
In order to prevent Slovakia or the EU as a whole from suffering the fate of places like Detroit or Cuba—losses in competitiveness or purchasing power as a result of certain policies and regulations—it is not enough to discuss raising tariffs on Chinese electric cars. It is, perhaps, not even the right direction. Instead, there is a dire need to systematically help increase this industry’s competitiveness and resilience by reducing financial and bureaucratic costs, creating the right environment for development, innovation, and production, and assisting with critical supplies. However, this cannot be achieved without first recognising the importance of this industry to the entire Slovak and EU economy, prosperity, but also the very way of life.
