The European Union (EU) increased tariffs on electric vehicles made in China to as much as 45.3% on Wednesday after unsuccessful negotiations with the country.

The bloc formally approved on Tuesday tariffs ranging from 7.8% to 35.3%, in addition to the EU's standard 10% car import duty. 

Beijing said it had lodged a complaint with the World Trade Organization over the move. 

Why is the EU imposing tariffs?

The EU argues that Chinese subsidies hurt competitiveness at home. The European Commission identified preferential financing and grants, along with land, batteries, and raw materials offered below-market prices.

The commission argues that China's spare production capacity, roughly 3 million EVs annually, is twice the size of the EU markets. The US and Canada had already enforced 100% tariffs on Chinese EVs, making Europe the most obvious market for these Chines cars now.

EU trade chief Valdis Dombrovskis said Tuesday that "by adopting these proportionate and targeted measures after a rigorous investigation, we're standing up for fair market practices and for the European industrial base."

"We welcome competition, including in the electric vehicle sector, but it must be underpinned by fairness and a level playing field," he said.

How has China reacted?

The tariffs were imposed after negotiations between the bloc and China on setting EV prices failed. A new round is due to begin soon, though the EU Commission said there were "significant remaining gaps."

China slammed the new tariffs.

"China does not agree with it and will not accept the ruling," the Commerce Ministry said, vowing to take all necessary measures "to resolutely safeguard the legitimate rights and interests of Chinese companies."

The Tariffs impact different Chinese-built cars with different percentages. Foreign vehicles made in China such as Tesla are hit with a 7.8% tariff, Chinese car giant Geely faces an 18.8% tariff, while state-owned SAIC has been slammed with the highest tariff, 35.3%.

The Chinese Chamber of Commerce to the EU urged Brussels and Beijing "to accelerate talks on establishing minimum prices and, ultimately, to eliminate these tariffs."

Meanwhile, China has taken steps in retaliation, vowing to impose provisional tariffs on European brandy, as well as probing EU subsidies on some dairy and pork products sold in China.

EU divided over tariffs

The bloc itself has been divided over the tariffs, with five of its 27 members voting against them and 12 abstaining.

Major automobile producer Germany is a significant opponent.

The head of Germany's auto industry association, VDA, described the imposition of the tariffs as "a setback for free global trade and so for prosperity, the preservation of jobs and Europe's growth."

"The industry is not naive in dealing with China, but the challenges must be resolved in dialogue," Hildegard Müller said in a statement, warning that the tariffs increase the risk of a far-reaching trade conflict.

Germany's Economy Ministry also stressed on Tuesday that Berlin "stands for open markets. Because Germany in particular, as a globally interconnected economy, is dependent on this."

German carmakers have been heavily critical of the tariffs, fearing potential higher Chinese import duties on large-engined gasoline vehicles, which would hit them hardest.

Hungary, where China is building new EV plants, has also blasted the tariffs, while France has been a strong supporter.

The tariffs are due to last for five years, unless an amicable solution is reached.

rmt/lo (AFP, AP, Reuters)