EU and China agree to halve Chinese hybrid car exports to Europe

The European Union and China have agreed to limit Chinese hybrid car exports to the EU through country-specific quotas and potential price undertakings. The deal will cut China's hybrid car exports by more than half, translating to a reduction of 'several millions' of vehicles over the next four years, according to EU trade chief Maroš Šefčovič.

China agreed to curb its hybrid car exports to the EU and ease restrictions on rare earths licensing. The EU will introduce quotas allowing 350,000 Chinese hybrid cars onto the European market annually over four years, with a fixed annual adjustment rate of 6%. Current exports are estimated to reach up to 800,000 units in 2026, meaning the new cap represents a significant reduction. This is the first time China has agreed to moderate its exports without prior trade tensions or World Trade Organization safeguard investigations.

China also proposed adhering to 'procedures concerning company price undertakings' for hybrid cars, potentially setting higher minimum price tags for Chinese cars sold in Europe. Chinese car exports to the EU are worth around €15bn.

Broader trade rebalancing efforts

The deal is framed as a first step in broader negotiations to reduce the EU's trade deficit with China and address structural imbalances. The European Commission launched these talks in June. The EU runs a trade deficit of more than €1 billion a day with China, a total bilateral deficit of €360bn.

Šefčovič described the deal as a 'key first step' but emphasized it is only the beginning. Earlier in the week, senior EU officials traveled to Beijing to seek a pilot scheme in one sector to potentially expand to others. As part of a 16-point agreement, both sides will continue negotiating on cars, rare earths export restrictions, and greater EU access to China's food and drink market. They reaffirmed their commitment to handle differences within WTO rules.

Trade defence and future negotiations

The EU is advancing a new trade defence tool and plans further talks, building on existing mechanisms to counter economic distortions. French President Emmanuel Macron and German Chancellor Friedrich Merz called for a new EU trade defence instrument to counter foreign economic distortions. The Commission promised EU ambassadors it would present proposals for this tool before the traditional December EU summit.

The proposed mechanism was already under consideration as part of a broader overhaul of the EU's trade defence toolkit. Other measures under discussion include a diversification instrument to reduce dependence on single suppliers and a solidarity mechanism for member states facing trade retaliation. Šefčovič cited 'literally thousands of job losses' at risk in EU member states due to cheap Chinese imports across sectors like chemicals and textiles.

Šefčovič stressed the importance of negotiations to avoid declaring a trade war. He is due to hold a video call with his Chinese counterpart in January, followed by another round of political talks in March. China's Ministry of Commerce stated it is willing to continue facilitating export license approvals for rare earths and permanent magnets destined for the EU.

Additional concessions and context

The agreement includes tariff liberalisation on select goods and follows intensive diplomatic engagement ahead of the EU summit. The deal was reached after four months of negotiations and announced on Friday. The EU secured tariff liberalisation for car parts, footwear, ice cream and olive oil, saving at least €225 million in duties.

One EU official anonymously noted a potential risk, saying, "It is quite a good deal, but I am afraid it might create relaxation at the European Council." EU leaders were due to discuss China at this week's summit, which occurs amid political uncertainty as Spain faces snap elections in November. Šefčovič will brief EU diplomats in Brussels ahead of the EU leaders' summit on Thursday.