The European Commission is expected to announce a new tariff hike on electric vehicle (EV) imports from China, a move that could cost Chinese automakers billions of dollars. However, Beijing may be open to negotiating a compromise in order to soften the blow to its EV sector, which right now stands as the largest in the world.

Currently, Europe’s tariff on Chinese EVs stands at 10% and each additional 10% increment would translate to $1 billion in new expenses for Chinese manufacturers. If Europe follows the precedent set by the United States, where the Biden administration raised tariffs on these vehicles to 100%, the financial repercussions for China could escalate to the $9 billion range.

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In retaliation, Beijing is reportedly considering a tariff increase of its own on large-engine car imports from Europe. China has also indicated a willingness to negotiate lowering this duty rate instead if European nations are open to reaching a compromise.

If a significant number of European Union (EU) member states oppose the move within a four month review period, the tariff increase could be nullified and the current duty rate may be reinstated. Should the EU move ahead with this plan to hike duties, the Chinese Foreign Ministry has said it will not “sit back and watch,” as it plans to take “every necessary measure” to protect its interests.

China has been strategically expanding its EV influence across the continent in recent years. Chinese-backed electric vehicle manufacturers have been making substantial investments in Europe, entering markets in countries such as France, Spain, Germany, Italy and Portugal. This growth has positioned China to potentially capture a quarter of the European EV market by the end of 2024.