UK Auto Industry May Gain EU Market Access With China Tariff Alignment

France and Germany have proposed allowing the UK’s automotive industry to participate in the EU’s 'Made in Europe' public procurement rules. The move, contained in a draft agreement, is conditional on the British government aligning its trade measures against China with those of the EU bloc. This would extend eligibility beyond the 27 member states to 'other European partners that were part of the EU internal market on 1 January 2020', bringing UK carmakers within rules intended to restrict subsidies and public contracts to European companies. To qualify, the UK would need to adopt 'EU trade protection measures'. Japan, South Korea and Turkey, which have also sought access, would remain outside the arrangement.

The draft follows months of Franco-German discussions on the future of the European car industry. Germany had pushed for the UK and other partners to be included, while France had supported a stricter EU-only approach. The proposed compromise would give the UK the market access its government seeks but requires closer alignment with EU trade policy. According to the proposal, there would be an opt-in for European partners who were part of the EU single market as of 1 January 2020, which includes the UK and Norway, provided they accept dynamic alignment on the EU’s conditions related to third countries’ investments and on relevant EU trade defence measures.

Trade policy alignment would require adopting EU tariffs on Chinese EVs

To qualify, the UK would need to adopt EU trade protection measures, including tariffs on Chinese electric vehicles. The EU’s maximum tariff has reached 45% since 2024, a sharp contrast to the UK's current 10% import duty on Chinese electric cars. The US applies a 100% levy. Business secretary Jonathan Reynolds has said higher UK duties on Chinese electric vehicles are 'under review'. The UK government stated it obviously has its own trade policy and keeps all tariffs under review, working closely with the British automotive sector. Trade minister Anas Sarwar hinted that the UK was minded to align, saying the UK and the EU must work together and act in lockstep to tackle China’s dominance in the automotive sector.

Industry warns of supply chain disruption and competitive pressures

The UK and EU automotive industries argue that excluding British manufacturers would disrupt highly integrated supply chains. UK carmakers are already facing stronger Chinese competition and higher US tariffs, which have contributed to significant production cuts. The government has been desperate for inclusion, fearing billions of pounds of trade could be lost if the UK is locked out of EU supply chains. Chinese EV brands are gaining rapid market share in Europe.

Ola Källenius, boss of Mercedes-Benz and president of ACEA, warned that locking the UK out would amount to a deliberate choice by EU leaders to hurt the car industry across the bloc. About 80% of UK-made cars are exported, with more than half going to the EU and 6% to China. Liam Byrne, Labour chair of the parliamentary business committee, said imposing tariffs on Chinese EVs would be a small price to pay to save the industry in both the UK and the EU. He criticised the government’s approach as naive.

Government weighs benefits against risks of retaliation and market impact

While the UK government welcomes the objective of inclusion, it remains concerned that such measures could trigger retaliation against British carmakers selling into China, including Jaguar Land Rover. It also wants to attract Chinese manufacturers to build factories in the UK. A UK government official said the proposal would be good news for the British automotive industry and the jobs it supports. Downing Street said it would welcome the objective to have the UK included after France dropped its opposition.

The Chinese embassy in London said it was firmly opposed to any discriminatory practice involving tariff hikes or restrictive measures on Chinese products, stating trade protectionism runs counter to WTO rules. Business secretary Jonathan Reynolds said he would not be coerced into aligning with the EU’s policy. A No 10 spokesperson said it was premature to speculate on the terms of any deal. Tariffs could help UK-based manufacturers by preventing cut-price Chinese models flooding the market but could also push up prices for consumers and harm British manufacturers selling to China.

Broader industrial policy includes relaxed climate rules and pending final approval

The draft agreement would also ease several EU climate requirements. It proposes a 2035 emissions reduction target of 90% from 2021 levels, removes a requirement to compensate for remaining emissions, and relaxes rules for plug-in hybrids, renewable fuels and corporate fleet electrification. An agreement is reportedly close, although negotiations continue over 2030 carbon dioxide targets. Any final package would require approval from other EU governments and the European Parliament. EU lawmakers are expected to finalise the Industrial Accelerator Act, known as Made in Europe legislation, by the end of the year or early 2027.