JLR has called for “continued dialogue between the European Union and China” after the UK carmaker was dragged into the tariff war with the threat of increased duties on its EU-built Land Rover Defender sold in China.

Chinese officials said this week the government was investigating raising tariffs on large combustion-engined cars imported from the EU.

The potential retaliation, sparked by the EU’s vote to apply 'anti-dumping' tariffs to Chinese-built EVs, would affect JLR’s second biggest-selling vehicle in China, the Land Rover Defender, as well as the Land Rover Discovery. Both are built in the EU state of Slovakia.

“China is studying measures such as raising tariffs on imported large-engined fuel vehicles,” a Chinese Ministry of Commerce spokesperson said on Tuesday.

“JLR advocates for free and fair trade. Anything which limits trade results in additional costs to manufacturers and ultimately customers,” the British company said in a statement to Autocar.

“JLR encourages continued dialogue between the EU and China so as to avoid punitive actions by either side.”

The Chinese government gave no details about the possible tariff increase, but earlier this year an official with the government-linked China Automotive Technology & Research Center recommended raising tariffs on cars with engines greater than 2.5 litres in capacity from the current 15% to 25%.

Any such move would affect JLR's Defender 110 and Defender 130 models, which use a 3.0-litre engine, while leaving the entry-level Defender 90 with its 2.0-litre engine unaffected.

The Defender was the third best-selling EU-built vehicle in China in the first eight months of the year, with 12,152 sales, according to figures from data aggregator Bestsellingcarsblog.com. First was the Porsche Cayenne and second was the Mercedes-Benz S-Class.

Other prominent models affected by any tariff increase include the Porsche Panamera, BMW 4 Series and Audi Q7.

JLR’s fortunes have revived in recent years, partly on the back of strong sales of its most profitable vehicles in China.

Its average sales price in China was the equivalent to £87,000, compared with a global average of just above £70,000, the company said at its investor day in June.

Premium brands have already been feeling the pressure in China in recent months as economic pressures hurt consumers and local rivals gained strength amid a punishing price war that has expanded beyond the volume segment.

“We are paying close attention to China,” JLR CFO Richard Molyneux told analysts on the company’s second-quarter earnings call. “There are certainly signals that demand is not at the level that we would like to see it going forward.”

German brands have been the most vocal in opposing the EU tariffs on Chinese-made EVs, partly due to the threat of retaliatory tariffs on their lucrative luxury exports to China.

BMW CEO Oliver Zipse condemned this week’s vote to make the tariffs permanent as "a fatal signal for the European automotive industry" and said the European Commission and China should reach a quick settlement “to prevent a trade conflict from which no one gains."

China has already imposed higher tariffs on French brandy.

One approach JLR could take to avoid the tariffs would be to ship the Defender 110 and Defender 130 models with the 2.0-litre engine as an alternative to the 3.0-litre engine if 2.5 litres is indeed the threshold of higher rates. 

The company is unlikely to localise production of the Defender at its Chinese facility, which will shift to making new Freelander-badged models built on an EV platform supplied by joint-venture partner Chery.

JLR has so far not suffered from the same drop in demand experienced by other premium brands in China. In fact, it grew there by 30% to 17,145 in the three months ending September, according to its own figures. 

China overtook Europe and the UK to become JLR’s third-biggest market in the quarter after North America and ‘overseas’, the term JLR uses to round up sales in all other markets.

Globally the Defender remained the firm's biggest seller in the quarter, with 28,277 sales, down 5.5%.

China’s threat to increase tariffs on imports of large ICE cars sends a warning signal to the UK as it investigates whether to follow the EU and raise higher barriers to Chinese EV sales here.