## CHINESE ELECTRIC CARS WILL HELP SOME EUROPEAN ECONOMIES AND HARM OTHERS, BUT TARIFFS WOULD LEAVE EVERYONE WORSE OFF

## Source details

**Canonical URL:** [CHINESE ELECTRIC CARS WILL HELP SOME EUROPEAN ECONOMIES AND HARM OTHERS, BUT TARIFFS WOULD LEAVE EVERYONE WORSE OFF](https://www.imf.org/-/media/files/publications/fandd/article/2024/12/zymek.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/fandd/article/2024/12/zymek.pdf.md)
- [Structured JSON version](/-/media/files/publications/fandd/article/2024/12/zymek.pdf.json)

---

### Context and scenario
- China accounted for 60 percent of global EV sales in 2023.
- EU EV adoption goal: 100 percent of new car purchases by 2035, up from 15 percent today.
- Chinese EVs retail for about 20 percent less than similar French, German, or Italian models in the EU.
- Scenario (“EV shock”): a productivity increase in China combined with a preference shift in the EU leading to a 15 percentage point increase in China’s share of the EU car market over five years. This scenario is illustrative and not a forecast.

### Historical yardstick
- Analogy used: Japanese entry into US market after 1970s fuel-price shock, when Japanese imports rose from almost 1.7 percent to nearly 15 percent of US car market between 1970 and 1985.

### Macroeconomic impacts (findings)
- Aggregate EU GDP impact: very small for the EU as a whole, but heterogeneous across member states.
- Country-level short- to medium-run impacts (relative to a no-shock steady state):
  - Hungary: decline in real GDP of 1 percent over five years.
  - Czech Republic: decline in real GDP of 1.5 percent over five years.
  - Germany, France, Italy: modest income loss (economies are large and diversified).
- Labor reallocation and dislocation:
  - Dislocated workers could reach as much as 2.6 percent of the workforce in the Slovak Republic.
  - Dislocated workers could reach 1.7 percent of the workforce in Hungary.
  - Dislocated workers would ultimately be reemployed primarily in services, but large-scale reallocation may have significant social, economic, political, and psychological costs.

### Trade-policy experiments and emissions
- EU has imposed new tariffs on Chinese EVs, up to 45 percent in some cases.
- Modelled tariff scenarios: average tariffs of 25 percent and 100 percent on Chinese automotive imports into the EU.
- Findings on tariffs:
  - Tariffs protect domestic auto production and yield limited revenue gains.
  - Tariffs raise consumer prices and production costs in sectors that could use Chinese vehicles as inputs.
  - Net effect: tariffs make the EU worse off in both short and long run; all EU countries end up poorer, with especially adverse effects on economies without sizable domestic auto sectors.
  - Tariff protection does not make European carmakers more competitive globally.
- Emissions implications:
  - Tariffs cause some consumers to buy more traditional vehicles over the next decade, adding to emissions.
  - If the EU maintains policies that achieve 100 percent EV purchases by 2035, the overall fallout for emissions is minimal; the main effect of tariffs is to raise the price tag of the transition.
  - A higher price tag may create pressure to delay EV adoption targets—such a delay would cause a much more severe impact on emissions.

### Mitigation channels and policy recommendations
- Allow and encourage Chinese firms to produce directly in Europe via increased foreign direct investment to lessen adverse impacts (parallel to how Japanese automakers served the US market beginning in the 1980s).
- Promote realistic productivity gains in the European car sector to soften macroeconomic impacts on the worst-affected economies.
- Remove remaining intra-EU barriers to trade and capital flows to exploit economies of scale and incentivize investment in research and development.
- Implement active policies to encourage investment and productivity gains in the auto sector and to assist with job transitions—while allowing Chinese EVs (BYDs, Nios, Xpengs) access to European roads.

*Source: IMF staff article drawing on IMF Working Paper 2024/218, “Europe’s Shift to EVs amid Intensifying Global Competition.”*

---


_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/12/zymek.pdf_