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China says EU escalation of trade friction could trigger 'trade war'



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Adds analyst comment in paragraphs 8,9 and 12, 13

By Joe Cash

BEIJING, June 21 (Reuters) -The European Union could trigger a 'trade war' if it continues to escalate tensions, China's commerce ministry said on Friday, accusing the bloc of foul play during its eight-month anti-subsidy probe into Chinese electric vehicles.

Last week, the European Commission proposed tariffs of up to 38.1% on electric vehicle imports from China despite Beijing's protest, plunging trade ties to a new low and risking punitive retaliatory action.

"The European side continues to escalate trade frictions and could trigger a 'trade war'," a statement attributed to the commerce ministry's spokesperson said. "The responsibility lies entirely with the European side."

The statement was published about an hour before the arrival of German Economy Minister Robert Habeck in Beijing, where he is expected to explain the recent tariff announcement and try to allay the risk of retaliation from China that could harm German businesses.

Chinese automakers on Tuesday urged Beijing to hit back by hiking tariffs on European gasoline-powered imported cars with large-engines.

German carmakers would be the most exposed to any counter moves from China, as almost a third of their sales came from the $18.6 trillion economy last year.

EU car exports to China were worth 19.4 billion euros ($20.8 billion) in 2023, while the bloc bought 9.7 billion euros of electric vehicles from China, according to EU statistics agency figures.

"It seems probable that Beijing will raise tariffs up to 25% for Europe-made cars with 2.5 or above litre engines," said Jacob Gunter, lead analyst at MERICS, a Berlin-based China studies institute.

"First, it will show domestic audiences that the government is aiming right back at the automotive trade in response to the EU tariffs. Second, it will create a sense of urgency for mostly German automakers to work hard to see them undone through lobbying at home," he added.


CHINA CALLS FOUL PLAY

EU trade policy is turning increasingly protective due to concerns China's production-focused, debt-driven development model could see it flooded with cheap goods as Chinese firms look to boost sales overseas due to weak demand at home.

But China decries accusations its firms benefit from unfair subsidies or that it has an overcapacity problem, and argues its rise in the global EV industry, as well as in solar panels and batteries, is driven by innovation and complete supply chains.

"When European Commission President Von der Leyen announced she would investigate China's new energy vehicles... I had an intuitive feeling it was not only an economic issue, but also a geopolitical issue," said Zhang Yansheng, chief research fellow, China Center for International Economic Exchanges.

"Personally, I think it is unfair to start a tariff war by only taking into consideration the capacity utilisation rate and insufficient demand," he added.

In its statement, the commerce ministry said it believed Brussels had not played by the rules. It accused Brussels of improperly using the "countervailing duties investigation tool", failing to comply with World Trade Organization rules by independently initiating its EV probe, and "intimidating and coercing" Chinese firms to hand over information.

Beijing has launched an anti-dumping investigation into EU pork imports, which the commerce ministry says was prompted by a complaint submitted by the China Animal Husbandry Association.

On Thursday, He Yadong, commerce ministry spokesperson, said the Commission had "mandatorily required" Chinese automakers hand over an unprecedented amount of information and "more than what is required for a countervailing duties investigation", when asked by Chinese state radio whether the EU had sought to spy on China's EV industry.



Reporting by Joe Cash and Ryan Woo; additional reporting by Ella Cao and Ethan Wang; Editing by Christopher Cushing, William Maclean, Miral Fahmy and Christina Fincher

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