The figure "40%" contains a kernel of truth, but it paints a misleading picture of how the EU's tariff protection on cars actually works. Let's take it step by step.
What's true in the claim?
It's true that with EU membership we would join the EU customs union and adopt its common external tariffs. The customs union means that within the EU there are no tariffs, no customs declarations and no customs clearance — including on cars manufactured inside the union.
Today, in fact, no customs duty is levied on imported passenger cars in Iceland, wherever they come from. Cars pay excise duties and VAT, but no tariff.
On joining the EU we would have to terminate the 2013 free trade agreement with China, and cars shipped directly from China would then face a tariff they don't face now. That's how far the truth goes, but it's only half the story.
The EU's base tariff on cars is 10%
The EU's standard tariff on imported passenger cars from countries without a free trade agreement is 10%, not 40%. This is the union's actual, permanent tariff protection on cars, and it applies, for example, to cars from the United States and China. All petrol, diesel and hybrid cars from China, including plug-in hybrids, pay this tariff and nothing more. The EU does, however, have a free trade agreement with Japan, so Japanese cars bear no tariff.
The countervailing duties: tied to manufacturers and time-limited
The figure the claim indirectly refers to is of a different kind. In October 2024, the European Commission imposed special countervailing duties on pure electric vehicles manufactured in China, following an investigation that concluded Chinese EV production benefited from state subsidies that created unfair competition. These duties come on top of the 10% base tariff and vary by manufacturer:
- Tesla (made in Shanghai): 7.8% countervailing duty — 17.8% in total
- BYD: 17.0% — 27.0% in total
- Geely: 18.8% — 28.8% in total
- Other companies covered by the investigation: 20.7% — 30.7% in total
- SAIC (MG) and companies not covered by the investigation: 35.3% — 45.3% in total
Only the top tier — SAIC, which makes MG, and companies that weren't part of the investigation — exceeds 40% in total. The best-selling Chinese brand in Iceland and in Europe, BYD, pays 27% in total.
It also matters that the countervailing duties are temporary: they apply for five years, until October 2029, unless changed sooner. BYD, Geely and SAIC have challenged them before the EU's General Court, and the Commission and the Chinese government are negotiating to replace the duties with minimum-price undertakings from manufacturers. The Commission published guidance on such offers in January 2026. It's quite possible these duties will be history before Iceland joins the union.
Production is moving inside the tariff wall
The Chinese manufacturers are already responding by moving production to Europe. BYD has built a factory in Szeged, Hungary, where pilot production began in early 2026 and mass production is due to start before the end of the year; the plant is meant to produce most of the brand's European models. Plans for another factory in Turkey are on hold. Cars manufactured inside the EU pay no tariff, and the same goes for cars from Turkey, which is in a customs union with the EU. A "Chinese car" bought in Europe in the coming years will therefore increasingly be built tariff-free inside the region.
What would this mean for car prices in Iceland?
All else being equal, a 27% tariff could largely feed through into the retail price. Experience in Europe since the duties took effect in autumn 2024 tells a different story, though: the Chinese manufacturers have mostly held their prices unchanged and absorbed the tariff themselves, as their European prices were already far above home-market levels.
In return, tariffs and customs clearance towards all EU countries disappear on accession, lowering the cost of importing European cars and spare parts.
In short: It's true that we would adopt the EU's external tariffs and that the free trade agreement with China would lapse. But the EU's permanent tariff protection on cars is 10%, not 40%. The highest total tariff, 45.3%, applies only to SAIC/MG and only to pure electric vehicles; the most common brand, BYD, pays 27% and petrol and hybrid cars 10%. The duties above the base tariff are a temporary countervailing measure that is being challenged in court and may give way to a minimum-price agreement. The Chinese manufacturers are moving their production inside the tariff wall, where no tariff applies.
Sources and further reading:
- Commission Implementing Regulation (EU) 2024/2754 — the regulation imposing definitive countervailing duties on battery electric vehicles from China, with company-specific duty rates in Article 1.
- EU Commission imposes countervailing duties on imports of BEVs from China (Access2Markets) — the Commission's summary of the duties and the rates by manufacturer.
- EU and China take new step to resolve row over subsidised electric vehicles (Euronews, Jan. 2026) — on the Commission's guidance for minimum-price undertakings to replace the duties.
- Iceland–China Free Trade Agreement (Government of Iceland) — the 2013 agreement, which we would have to terminate on joining the EU customs union.
- Icelandic Customs Tariff (Iceland Revenue and Customs) — lookup of Icelandic tariffs by tariff code; the general duty on passenger cars (Chapter 87) is 0% today.
- EU TARIC customs tariff (European Commission) — lookup of the EU's 10% base tariff on passenger cars (tariff heading 8703).
- Treaty on the Functioning of the European Union (TFEU), Articles 28–32 — the provisions on the customs union and the EU's common external tariffs.