From the perspective of the German automotive industry, the vote on punitive tariffs for electric vehicles produced in China has turned out as badly as possible. The hefty additional tariffs, now approved by national governments, affect not only Chinese producers, but also German manufacturers who produce electric cars in China for the European market.

Additionally, the risk has increased that Beijing will impose counter-sanctions, potentially escalating the trade conflict – a prospect that is particularly worrisome for German carmakers, given the importance of their exports to China.

The last hope now lies in negotiations to find ways to prevent the tariffs at the last minute – through measures such as minimum prices or volume caps. However, multiple sources have already pointed out that such regulations are difficult to enforce. Moreover, the fact that these alternatives have been discussed unsuccessfully for months does little to inspire confidence in reaching an agreement.

The argument that these negotiations would now be easier from a European perspective, as the EU has shown its resolve to increase the cost of Chinese imports if unfair subsidies are at play, also falls flat. To be clear: there is no real sign of firm resolve. If the unconfirmed reports circulating in Brussels are to be believed, the vote was 10 in favour to 5 against, with 12 abstentions. In other words, the EU is divided on the fundamental trade policy question of how to handle sanctions. This fragmentation reflects nothing more than the differing importance of exports among member states. Those with less to lose can afford to be more aggressive with punitive tariffs.

For both Germany and Europe, the dilemma of suffering from Chinese state subsidies for competitors in domestic industries (and by no means just the automotive industry), while simultaneously shooting themselves in the foot with punitive tariffs and causing major disruptions in trade, will not remain limited to electric vehicles.

Instead, the internal European debate over the merits and drawbacks of using trade policy instruments will continue to preoccupy the EU. This controversy highlights how challenging it will be for European companies to remain globally competitive when policies in China, and also in the US, provide generous support to domestic industries in ways that Europe perceives as unfair competition.