Beijing has rebuffed a European Union request to voluntarily limit hybrid car exports to the bloc, escalating a trade dispute that now threatens to trigger new tariffs on Chinese-made hybrid vehicles. The EU had proposed that Chinese brands cap their share of the bloc's hybrid market at around 15%, down from the current level of more than one-third, according to the Financial Times.
After China refused, the European Commission is now weighing temporary safeguard tariffs that would not require proof of unfair trade practices, two diplomats told the newspaper. Under the plan, a set quota of Chinese hybrids would enter the EU on standard terms, while shipments above that ceiling would face steep extra duties. Bloomberg reported that Brussels views the hybrid curbs as a test case that could later be extended to other sectors with large trade imbalances.
European Trade Commissioner Maros Sefcovic began two days of talks with Chinese Commerce Minister Wang Wentao in Beijing on Thursday (October 8) to resolve the standoff. EU leaders will discuss the issue at the European Council summit in Brussels on October 15-16, as officials describe the bloc's trade deficit with China of about €1 billion (US$1.15 billion) a day as unsustainable.
In October 2024, the EU imposed five-year countervailing duties of 7.8% to 35.3% on Chinese-made battery electric vehicles (BEVs), on top of its standard 10% import tariff. Beijing responded with anti-dumping measures against European brandy, pork, and dairy products. However, the probe excluded hybrids, leaving them subject only to the 10% duty.
Over the past two years, Chinese carmakers led by BYD and Chery have shifted their export focus toward hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs), rapidly gaining market share in Europe while their BEV shipments faced the extra levies. HEVs cannot be plugged in and recharge their small batteries through their gasoline engines and braking, while PHEVs carry larger batteries that can be charged from the grid and run on electric power alone over longer distances.
Eurostat data show EU imports of Chinese-made PHEVs rose from 56,706 units in 2022 to 217,764 in the first seven months of this year. Chinese HEV imports jumped from 659 to 160,662 over the same period. The surge has gathered pace in recent months: EU imports of new Chinese-made HEVs climbed from 23,711 units in May to 32,797 in July, while their monthly value rose from €335.6 million to €489.4 million.
Beijing's response and the road ahead
Pro-China commentators assert it is unreasonable to ask Chinese carmakers to limit sales in the EU when European hybrids simply aren't competitive enough. “The EU's so-called voluntary export restraint (VER) tramples on international trade rules, and China will not accept it,” a Zhejiang-based columnist using the pen name “Automobile Observe” says in an article. “Brussels is playing word games. An outright ban or a unilateral tariff hike would break the World Trade Organization's rules, so it is pressuring China to limit its own exports instead.”
She says China's PHEV exports to Europe grew 155% year-on-year in 2025, far outpacing the 12% growth in pure electric models, as European consumers voted with their wallets for products that offer the best value for money. She notes that financial institutions such as Morgan Stanley expected the EU to extend its anti-subsidy duties to HEVs and PHEVs. “The EU wants to extend the tariffs on pure EVs to hybrids and give its slow-moving legacy carmakers more time to catch up,” she adds. “Chinese carmakers can simply get around the tariff barriers by setting up assembly plants in Europe.”
On March 4, the European Commission unveiled the Industrial Accelerator Act (IAA), a “Made in Europe” proposal. Publicly funded or subsidized EVs and PHEVs would have to be assembled in the EU, with at least 70% of their non-battery components sourced locally. The IAA would also screen non-EU investments over €100 million in strategic industries, tying approval to technology sharing and local sourcing. Investors from free trade partners would be exempt, but China is not among them. If the European Parliament and member states approve it, the EV rules would apply from around mid-2027 and the other provisions from January 1, 2029.
“Chinese carmakers won't be stopped by the EU's export quotas or tariffs as they are already building cars in the bloc,” a Liaoning-based writer using the pen name “Xingwan” says in an article. “For example, BYD's plant in Hungary, which involves an investment of €4 billion, aims to make 300,000 cars a year and will begin mass production in the fourth quarter of 2026.” She adds, “EU policymaking is far too slow to keep up. Brussels moves on a yearly timetable, while Chinese firms can adjust their production every month. Chinese carmakers have spread their capacity across Europe, Mexico and Turkey, so no single measure can stop them.”
However, the columnist admits that the IAA's 70% local-content rule and its limits on foreign ownership put pressure on Chinese carmakers, whose cars could lose their price advantage if buyers can no longer claim subsidies. Over the long run, Chinese carmakers with factories in Europe will be drawn deeper into the EU's production ecosystem, facing pressure to share their technology and buy more parts from European suppliers.
Japan went through a similar Western market squeeze from the mid-1970s. Britain held Japanese brands to about 11% of its market and France to about 3%. The US pushed Tokyo to curb its car shipments and kept a 25% tariff on imported light trucks. In 1981, Japan agreed to a voluntary cap on its car exports to the US, which it kept until 1994. In 1991, Tokyo and Brussels agreed that Japan would restrain its car exports to the EU. The current standoff echoes those earlier disputes, but the stakes are higher given the scale of China's manufacturing capacity and its strategic ambitions in the automotive sector.
As the EU and China navigate this impasse, the outcome will shape not only the future of the region's auto trade but also the broader relationship between the world's largest trading partners. For now, Brussels appears determined to protect its domestic industry, while Beijing shows little willingness to back down. The coming weeks will be critical in determining whether a negotiated settlement can be reached or whether the dispute escalates into a full-blown trade war.
