Europe's increased tariffs on electric vehicles put it at risk of a trade war with China.

The European Union has increased taxes on Chinese-imported electric vehicles, a decision that is sure to enrage Beijing and unsettle Chinese automakers, who see the EU as a crucial and expanding market.

In contrast to the former flat rate of 10%, the new levies will range from 17.4% to 38.1%, according to a statement from the European Commission. The examination of China's state support for electric vehicle manufacturers led to the temporary decision. The investigation was started in October by the European Commission, the executive branch of the EU, to determine whether Chinese EV pricing are unduly low due to subsidies, harming European automakers. The Commission noted that the EV business in China "benefits from unfair subsidisation, which is causing a threat of economic injury," based on a preliminary conclusion drawn from its inquiry.

The steep increase in duties, which goes into force next month, emphasises the more defensive approach to trade with China that Washington and Brussels are taking. Western policymakers are becoming more and more worried that cheap imports from China could destroy domestic jobs and strategically significant industries. The EU is also looking into China's official subsidies to solar panel producers and wind turbine manufacturers. Three significant EV manufacturers have different degrees of duties imposed by the Commission. BYD, which is in a competitive market with Tesla (TSLA) to be the largest global seller of electric vehicles, has the lowest duty rate at 17.1%.

Geely, the owner of Volvo in Sweden, is subject to a 20% duty, whereas SAIC is subject to a 38.1% tariff. Regarding the other Chinese EV manufacturers, there will be a 21% charge on those who assisted the EU probe and a 38.1% duty on those who did not.

China's top export destination for electric vehicles is now Europe. The Rhodium Group, a think tank, estimates that the value of EU imports of electric vehicles from China increased to $11.5 billion last year from just $1.6 billion in 2020.

Following the near-complete exclusion of Chinese electric vehicles from the US market last month, there was increased pressure to safeguard European automakers. As part of a broad set of tariffs on Chinese imports, including semiconductors and batteries, President Joe Biden increased import levies on Chinese electric vehicles (EVs) by four times to 100%.

However, European officials could not be as oppressive in their attitude because they have other things to attend to. Numerous European automakers produce their vehicles in China before reselling them in Europe. Furthermore, as China is a major source of sales for German automakers, a Beijing response against increased EU tariffs may make things more difficult for them. Politicians and executives in the German auto sector are adamantly against tariffs, although France and Spain support them. In a recent results call, BMW CEO Oliver Zipse cautioned Europe, stating that tariffs might jeopardise the global business model of German automakers.

Intense negotiations between Beijing and Brussels to prevent a devastating trade war are expected to begin as a result of the increased EV tariffs. By November, the EU needs to decide whether to impose the levies permanently. Will Roberts, head of automotive research at consultancy Rho Motion, said in a statement on Friday that Beijing's response to the tariffs "could lead to a trade war (with Europe), which would be devastating for a region that is still heavily dependent on Chinese-dominated supply chains in order to achieve its lofty climate goals." Beijing might potentially go after completely unrelated sectors. For instance, it may levy taxes that would hurt producers of cognac in France and has already started an anti-dumping probe into brandy imported from the EU.