German deputy leader visits China as EU tariff tensions simmer

By Maria Martinez

BERLIN (Reuters) -German Economy Minister Robert Habeck set off on Wednesday for a visit to China to try to deepen economic ties while helping manage the fallout of the EU's threat to impose steep tariffs on Chinese cars that has raised fears of a trade war.

Habeck, who has personally spoken out against punitive tariffs as a last resort, took with him a low-key business delegation and will address trade relations while also pressing China on hot-button issues such as Russia's war in Ukraine.

Germany is seeking to broaden access for its companies to the vast Chinese market, while also trying to "de-risk" its economy from being too reliant on any one country.

Habeck's trip comes a week after the European Commission proposed tariffs of up to 38.1% on electric vehicle imports from China, marking a new low point in economic relations and prompting China to threaten retaliation.

"China is an indispensable partner for global challenges, such as combating climate change," Habeck said before leaving.

"It is therefore important that we remain in dialogue and we talk about fair and equal competitive conditions."

As Europe's largest economy, Germany's voice carries particular weight, and its leading car manufacturers have vociferously opposed the EU tariffs. It has urged dialogue while also expecting China to compromise.

For their part, Chinese automakers have urged Beijing to hike tariffs on imported European gasoline-powered cars in retaliation, the state-backed Global Times said on Wednesday.

"Habeck should act as a mediator between the EU and China here and resolve a trade dispute early in the interests of German small and medium enterprises," said Patrick Schoenowski, from the German Association for SMEs, DMB.

"The aim of the negotiations with China should be to resolve the root causes of the punitive tariffs."

Habeck's ministry has outlined the goals for the trip as explaining Germany's trade and economic policy to China, including its need for energy diversification.

But the car tariff issue is unavoidable.

"Of course, the minister will have no choice but to address this issue, that is quite clear," a ministry spokesperson said.

"But he is not conducting talks on behalf of the EU Commission, that is the task of the Commission."

TARGETING EXCESSIVE SUBSIDIES

The European Commission said it would impose extra duties on Chinese electric cars from July to combat excessive subsidies.

The state-backed China Daily newspaper expressed hope that "proper solutions" could be found during Habeck's talks with Chinese officials before the tariffs come into force.

Habeck said Germany did not want to separate from China but some issues should be addressed during the trip, particularly China's support for Russia and human rights.

"The experience of recent years is that, in critical areas at least, a high level of dependency on just one country, with which there is also a certain competitive or systemic rivalry, can become a problem," Habeck told reporters.

"The German economy has fully understood this."

German Chancellor Olaf Scholz, who visited China in April, has not criticised the EU tariffs directly but warned about the dangers of protectionism.

Juergen Matthes, from the German economic institute IW, said the framing of the tariff issue would be crucial.

"If the EU has sufficient evidence of unfair subsidies, imposing extra duties is not protectionism, but rather an attempt to establish a level playing field," he told Reuters.

Habeck, who comes from the Greens party in Scholz's three-way coalition government, will also raise climate protection as well as long-standing trade bugbears such as fair competition for German firms and transparent public tenders.

While Scholz took the CEOs of major German firms on his trip, Habeck's delegation focuses "deliberately on SMEs in order to give this backbone of the German economy appropriate recognition abroad during such trips", a ministry source said.

(Reporting by Maria Martinez; Editing by Matthias Williams, Sharon Singleton and Alison Williams)