EU plans to raise hub tariffs or trigger auto trade war

According to foreign media reports, the EU is expected to increase the punitive tariff rates imposed on China's aluminum alloy wheel hubs. This controversy shows that China's move toward more sophisticated and sophisticated manufacturing has exacerbated the country's tense relations with some of its major trading partners.

A special EU Trade Commission plans to vote this Tuesday to decide whether to extend the anti-dumping duty period imposed since May and increase the tax rate from 20.6% to 22.3%.

According to informed sources, the special EU Trade Commission may approve this decision. However, this decision will need to be officially approved by EU governments.

A new round of tariff adjustments will lead to an auto trade war between the EU and China. This trade war will damage the interests of European automakers such as Daimler and Volkswagen. For these companies, China's booming auto market has become their main source of profit.

Simon Evenett, professor of trade economics at the University of St. Gallen in Switzerland, said: “The trade dispute between the EU and China used to be related to bras, T-shirts, shoes and ironing boards. Now the controversial goal has gradually tended towards cars.”

However, Europe's attitude toward auto trade disputes is not uniform. The EU automakers and auto parts companies have great differences in the issue of anti-dumping duties. Auto manufacturing companies oppose raising tariffs through lobbying activities, while auto parts companies agree.

Ronal AG, a car wheel manufacturer located in Landau, Germany, specializes in the casting and polishing of aluminum alloy wheels for high-end automobiles. The company implements highly automated production with 480 employees and an annual output of 2 million.

Ronal AG strives to promote anti-dumping duties. Oliver Schneider, the company's sales manager, said: "If we want to keep our business going, we need anti-dumping duties."

The company said that if there is no tax anti-dumping duties, employees of Ronal AG and other European hub manufacturers will be unemployed. Last year, the production of these companies reached 10 million. Because Chinese companies participate in competition, the company has not established a new factory since 2006.

Wheelbase manufacturers such as Ronal AG and many European large auto companies have different views on tax anti-dumping duties on Chinese wheels. Automobile manufacturers believe that China is the world’s fastest growing large-scale automobile market, and that raising tariffs may be subject to retaliation from China. This will not only impede the export of EU vehicles and parts to China, but also increase the manufacturing cost.

A Brussels automotive industry lobbyist said: "Without the Chinese market, there will be no future for automakers." China has surpassed Japan and the United States in recent years to become the world's largest auto market and is still growing at a rapid rate.

In 2009, the European Union exported a total of 5 billion U.S. dollars worth of auto parts to China. This market is expected to continue its strong growth. At the same time, EU exports to China are also growing. For example, during the period from 2004 to 2009, Germany’s total exports to China have more than doubled.

In the case of aluminum alloy wheel hub anti-dumping cases, China denied any unfair export or loss-making exports. Li Xiaoqing, an official of the China Association of Automobile Manufacturers, said: "China's export of automobile hub prices is higher than that of the domestic market. This means that China's hub export business does not belong to anti-dumping."

When the EU imposed anti-dumping duties on wheels for the first time in May, the Chinese Ministry of Commerce stated that the EU violated WTO regulations. China has said it will retaliate. Li Xiaoqing said: "If the EU insists on extending the deadline for anti-dumping duties, we will certainly take countermeasures."

There has been a precedent in this regard. After the Obama administration raised tariffs on Chinese tires last year, the Chinese government immediately raised tariffs on U.S. poultry and auto parts.

This is a disturbing prospect. Like the United States, the car is still the center of European manufacturing. Exports of auto parts of the European Union (including exports from EU member states) reached about 100 billion U.S. dollars last year. The EU is fighting for the future of the Asian parts industry.

Although a four-piece hub does not cost more than $150, it is a key automotive component. Traditionally, automotive wheels are made of steel. But since the 1970s, car manufacturers have gradually adopted aluminum wheels. Although the cost of this type of hub is higher than that of previous products, it is lighter and can be shaped to be slim, flexible, and aerodynamic.

As China has gradually entered the automotive industry in the past decade, the production of Chinese components has also increased significantly. China has become the world’s largest hub exporter last year, with exports reaching US$2.4 billion. Almost all of these hubs are exported to the United States, Japan, and Europe.

According to EU anti-dumping documents, the weight of aluminum alloy wheels imported from China by the European Union increased from 9400 tons in 2003 to 53,000 tons in 2008. Although the share of Chinese aluminum alloy wheels in the EU aluminum alloy hub market is 10%, most of the wheels are sold to vehicle owners as replacement parts.

In the market that supplies automobile companies with wheels, the market share of Chinese products is only 3%. But even in this market, people can feel the influence of China. Wheel industry sources said that Chinese companies reported low prices, forcing European wheel manufacturers to sharply reduce their profit margins.

In the trade case, in order to prove the other party's dumping, the complainant must prove that the other party's product was unfairly produced at a lower cost than the reasonable cost, resulting in the suspension of the domestic manufacturer. This concept is called "damage."

According to industry sources, aluminum costs about 50% of the cost of aluminum alloy wheels. Wheel companies outside of China purchase aluminum at prices set by the London Metal Exchange.

European wheel manufacturers said that Chinese companies benefited from government subsidies for buying aluminum. The European Commission investigators agreed with this view that the Chinese government has played a major role in setting primary aluminum prices, and has continuously intervened in the aluminum market through a series of tools.

"Damage" usually needs to be proved by data showing that the market share of the other party's product has soared. But this time it is different. The evidence used by European hub manufacturers is their own profit margins. The low prices of Chinese hubs have led European companies' profit margins to fall from the previous 7%-10% to the current 3.2%.

Ronal AG and other European companies have tried to improve their competitiveness by strengthening automation. But their factories still lag behind Chinese companies in manufacturing technology. The project manager of Ronal AG, Jürgen Becker, watched a giant robot remove a wheel from the polisher. He said: "Chinese companies may also adopt this production process, but they use fewer people and more robots."