The EU's Industrial Accelerator Act — branded as the "Made in Europe" law — is designed to shield European manufacturers from Chinese competition. China now runs a £1bn-a-day trade surplus with the EU, and the legislation would steer public contracts and industrial incentives toward locally produced goods. The problem: the current text may treat the UK as "outside Europe" for industrial purposes, severing supply chains that were integrated for decades before Brexit. Mercedes-Benz CEO Ola Källenius, speaking as president of the European Automobile Manufacturers' Association (ACEA), was uncharacteristically blunt. Excluding the UK "does not make any sense," he said at the annual Brussels briefing. "We would hurt our industry in the UK and the EU. That would be a deliberate choice to worsen the competitiveness of your own industry." This is not diplomatic hedging — it is an industry leader telling policymakers their protectionism is pointed at the wrong target. The political dynamics are tangled. Andy Burnham has lobbied hard for UK inclusion but is hitting French resistance. The UK-EU summit on 20 November is Starmer's window, but EU leaders want political agreement on the IAA text by December. The EU has signalled that UK alignment on Chinese EV tariffs — which the bloc imposed in 2024 — would strengthen the UK's case. Business secretary Jonathan Reynolds, speaking from India, said tariffs on Chinese vehicles are "not on the cards at the moment." The UK wants access without alignment costs. Meanwhile, a second clock is ticking. The post-Brexit Trade and Cooperation Agreement schedules 10% tariffs on electric vehicles traded between the UK and EU from next year, triggered by insufficient local battery production on both sides. The tariff was already suspended once — originally due in 2024, pushed to 2027 — because neither side can produce enough EV batteries to meet the rules of origin. ACEA is lobbying for another two-to-three-year suspension. "We have our feet to the fire," said ACEA trade director Jonathan O'Riordan. The deeper structural issue is battery supply. Batteries represent roughly 45% of the cost of a new EV. Neither the UK nor the EU produces enough domestically to compete with China, which means the rules-of-origin requirements in the TCA are currently fiction — compliance is impossible without Chinese components. The tariff mechanism was supposed to incentivize local battery production, but the investment hasn't arrived at the pace required. Both sides are penalizing themselves for a capability gap neither has closed. China's position continues to strengthen. A deal struck Friday between Beijing and Brussels commits China to halving hybrid EV sales to the EU over four years — a concession that acknowledges the scale of the problem but does not solve it. As one senior EU official put it: "No amount of champagne exports is going to revitalise the relationship." The trade imbalance is structural, not cyclical. The convergence of these three pressures — IAA exclusion, TCA EV tariffs, and the China surplus — creates a scenario where EU industrial policy simultaneously locks out its closest manufacturing ally, penalizes its own automakers for a battery gap it hasn't addressed, and negotiates half-measures with the competitor it was trying to counter. The risk is an industrial policy that protects no one and fragments everyone.
