Caught in the middle of a deepening trade row between the United States and China, Europe’s car industry is under growing strain. The latest round of US tariffs on Chinese vehicles and components is shaking up global supply chains – and putting French and European carmakers in a tough spot.
For companies like Stellantis and Renault, which rely heavily on Chinese suppliers, the ripple effects are already being felt. Higher costs, delayed shipments and tougher choices about where to invest next are all part of the fallout.
"For the last 30 or so years, the global auto industry has moved toward markets that can lower the overall cost" of cars for sale, Bill Russo, CEO of Shanghai-based car industry watchdog Automobility, told RFI.
China played a central role in that shift. Its car production jumped from 1 million vehicles a year to 30 million over three decades, helping drive down prices across the sector.
European brands followed the trend, entering joint ventures and building cars and parts in China before exporting them back home.
But the latest tariffs from Washington – 10 percent on all imported cars and 145 percent on vehicles made in China – threaten to upend that model.
Russo said the measures create “additional friction to the system, adding additional costs”, which will result in “less competitive pricing among the domestic industries that have relied on low-cost country sourcing”.
European carmakers spent decades building production models based on low-cost Chinese parts and joint ventures. But with higher tariffs and rising costs, that strategy now looks increasingly fragile.
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Twin pressures
The US tariffs are more than just a bilateral issue. They disrupt the intricate web of global supply chains, raising costs for all automakers who source components from China, including European firms.
"By increasing costs of components, you're increasing the price of the vehicle or decreasing margin. When you do that, you shrink your market," Russo explained.
This is particularly problematic for European manufacturers, who are already grappling with the twin pressures of US tariffs and the European Union’s own trade barriers against Chinese electric vehicles.
The result is a squeeze that threatens to undermine the competitiveness of European brands both at home and abroad.
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Bill Russo, CEO of Automobility, comments on the downside of tariffs.
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Chinese globalisation
However, the tariffs in fact have little direct effect on Chinese automakers themselves. "It does not have a tremendous negative impact on the Chinese automakers because they don't sell cars in the United States," Russo pointed out.
Instead, Chinese firms are simply redirecting their export strategies to other regions, building factories in Southeast Asia, the Middle East – and Europe itself. Companies including BYD, Geely, and new entrants such as Xiaomi, are all planning or building factories overseas to circumvent trade barriers.
"The unintended consequence of tariffs is it will accelerate the globalisation of the Chinese supply chain and automakers," Russo said.
Europe’s challenge
Unlike the US – which, according to Russo, has adopted "a clear policy of decoupling from China" – Europe remains dependent on Chinese supply chains, particularly for next-generation technology such as electric vehicles and batteries.
"China makes one out of every three cars made in the world. They actually make three out of every four electric vehicles. They make about three out of every four EV batteries. What are you going to replace that with?" Russo asked.
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European policymakers are caught between the need to protect domestic industry and the practical reality that cutting off Chinese supply would jeopardise the continent’s ambitions for electrification and carbon neutrality.
"If the source for that efficient supply of materials and products is cut off from the European Union, you've got a big problem of fulfilling the vision of a carbon-free or an electrified transportation sector," warned Russo.
'Smartphones on wheels'
For multinational automakers such as Stellantis and Renault-Nissan-Mitsubishi, the path forward may lie in deepening partnerships with Chinese firms.
"Stellantis formed a partnership invested in a Chinese company called Leapmotor, to be able to partner with them to get access to EVs that can be sold through their network. That's a way," said Russo. But he cautioned that collaboration must go beyond hardware.
"Cars today are becoming smartphones on wheels. They're becoming smart devices. You need to build not just the hardware associated with that, but you need the software and you need the infrastructure ... that part, China is building.
"I think in countries like France, you should be thinking about the whole ecosystem and how to collaborate with Chinese companies to build that."
'Flip the script'
Russo suggests that Europe should "flip the script" and adopt the same playbook China used during its own industrial rise: to require that Chinese investment in Europe come with technology transfer and joint ventures.
When China opened up to outside investment in 1979, foreign companies were welcome provided they formed joint ventures with a local Chinese partner, and provided them with the latest technology and know-how. Established Western car companies – including GM, Volkswagen and Peugeot – invested heavily.
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But, decades later, the tables have turned.
"Get China to invest and guide the investment toward forming partnerships, maybe joint ventures, maybe some other way of transferring knowledge. But don't give it away. The tariffs shouldn't be the end game," Russo said.
"Tariffs are not the end of the conversation. They should be the beginning of the discussion around how to level the playing field."
