The deepening trade war between the US and China could soon be seen as a battle between clean tech versus fossil dinosaurs as auto industry insiders report China is looking to place a 25 per cent tariff on US gas guzzlers in response to the US move to slap a 100 per cent tariff on imported Chinese EVs.

The China Chamber of Commerce to the EU (CCCEU) says it was informed by insiders that China is considering increasing temporary tariffs on “imported cars equipped with large-displacement engines” a move clearly aimed at large US and European fossil cars.

“This potential action carries implications for European and US automakers, particularly in light of recent developments such as Washington’s announcement of tariff hikes on Chinese electric vehicles (EVs) and Brussels’ preparations for preliminary measures in high-profile anti-subsidy investigation into Chinese EVs,” the CCCEU said in a tweet last week.

The CCCEU says Liu Bin, chief expert at the China Automotive Technology & Research Centre, suggests the tariff on imported large-engine vehicles could be increased to a maximum of 25 per cent and still align with World Trade Organisation (WTO) regulations.

“This adjustment could also help China promote the transition to greener practices in the automotive industry and advance it’s objectives of reducing carbon emissions.” said the CCCEU in a statement posted on X last week.

CCCEU’s Note to Press: China may raise temporary tariffs on EU’s large-engine cars ⬇️⬇️ pic.twitter.com/QZkgZM9Zc5

— China Chamber of Commerce to the EU (CCCEU) 欧盟中国商会 (@CCCEUofficial) May 21, 2024

Tariff on large-engine vehicle imports essentially a carbon boarder tariff

While many commentators will undoubtably frame a likely Chinese large-engine vehicle tariff as part of the trade war with the US, it could also be seen as China’s first ever carbon border tariff.

Given China is the world’s largest car market, such a move could have a profoundly positive impact by incentivising the global automotive industry to accelerate its transition 100% EV production.

According to a China Daily report on Friday, spokesman for the Ministry of Commerce He Yadong told a news conference that China remains steadfast in its commitment to a green and low-carbon development pathway.

He said it will actively promote and support the transformation of all industries, including the automotive industry, toward more sustainable and low-carbon alternatives.

China Daily reports He Yadong said some countries and regions are currently straying from the principles of green development and violating market economy standards. Additionally, they are breaching WTO rules by implementing restrictive measures in the new-energy vehicle sector, referring to the US move to place a 100% tariff on Chinese electric vehicles specifically.

“We believe that these measures not only disadvantage consumers in these places but also impede global progress in green transformation and efforts to combat climate change,” he said at a news conference in Beijing.

While Chinese tariffs on imported vehicles aren’t new, the specific targeting of “large-engine” vehicles for increased tariffs could be seen as China’s first ever carbon border tariff.

In 2018 China reduced tariffs on imported vehicles of all drivetrain types from 25% to 15%. A likely move to increase tariffs only on “large-engined” fossil fuel vehicles should be seen as a pro-climate move aimed at reducing emissions and incentivising legacy auto companies to increase exports on electric vehicles.

Clean tech finance expert and head of Climate Energy Finance think tank Tim Buckley thinks a China CBAM (Carbon Border Adjustment Mechnanism) is just what’s needed to kick Australian miners into action.

“While it’s a leap from a tariff increase on large engine cars to a China CBAM, it is great to see China referencing and linking the importance of the energy sector technology disruption and the need to green the economy.” says Buckley.

“A China CBAM is exactly what Australian mining exporters need to provide the financial signal that the market will progressively value embodies decarbonisation in international trade, the sooner the better for Australia.”

Australian transport sector set to be biggest source of emissions by 2030

Last week the Australian government released its Transport and Infrastructure Net Zero Consultation Roadmap calling for public submissions with ideas to accelerate the reduction of emissions in the transport sector. With 60% of all transport sector emissions coming from passenger vehicles, a 25% fossil car import tariff would certainly do just that.

“If we do not act, transport emissions are on track to be the largest source of greenhouse gas emissions in Australia by 2030, with almost 60% of these emissions coming from the light vehicle sector,” transport minister Catherine King and climate and energy minister Chris Bowen write in the introduction to the roadmap.

The roadmap also points out that Australia’s obsession with large vehicles could wipe out all the gains from the New Vehicle Efficiency Standard (NVES).

“Sales of bigger and heavier cars such as SUVs are the fastest growing vehicle segment. These trends have the potential to offset any reduction in emissions we may see from fuel efficiency improvements and the increased adoption of electric vehicles (EVs).” says the roadmap.’

Rapidly cutting transport sector emissions has become even more important after recent report from the Guardian showed that most IPCC (Intergovernmental Panel on Climate Change) scientists expect global warming to “blast past the 1.5C target”.

The Guardian report also found that almost 80% of scientists expect a rise of at least 2.5°C above preindustrial levels which is considered a catastrophic level of heating.

With an average lifespan of around 15 years, the transport sector is going to take a lot longer to decarbonise than most politicians realise. It’s why it’s so critical we accelerate the uptake of new EVs right now and urgently phase out new ICE vehicle sales.

In addition to a fossil car advertising ban, perhaps Australia should follow China’s lead and place a 25% tariff on all imported large-engine fossil cars. That would surely get things moving in the right direction.