Steep increases of U.S. tariffs on Chinese electric vehicles and batteries are likely to backfire, hurting consumers and companies and hampering climate goals, experts say, even though the stated goal is to protect U.S. manufacturing jobs. On May 14, U.S. President Joe Biden directed the office of the U.S. Trade Representative to increase tariffs on USD18 billion worth of Chinese goods, including electric vehicles, lithium-ion batteries, semiconductors, solar cells, medical supplies and certain critical minerals and metal products, after reviewing existing tariffs under Section 301 of the Trade Act of 1974. The Office announced that the changes will take effect on August 1.
The greatest increase applies to Chinese-made EVs, with tariffs rising from 25% to 100%. However, the practical immediate impact of this measure is minimal because there are few Chinese EVs exported to the U.S. market. More concerning for the industry is an increase in tariffs on Chinese EV batteries and parts, from 7.5% to 25%. This directly affects U.S. EV makers such as Tesla and Ford, who rely on Chinese lithium iron phosphate batteries for some models. The tariffs are likely to result in higher prices for EVs and batteries for U.S. consumers, said Soody Tronson, an IP law expert in Silicon Valley, California, with a focus on the energy sector. “The lack of competition will likely result in price increases. We have to consider how these tariffs affect everyday Americans.”
Tronson pointed to the potential negative impact on Biden’s climate goals. The Administration has said EVs are central to its climate change strategy, and restricting access to EV battery technologies, in which China leads the world, may slow the U.S. transition to clean energy. Tronson highlighted the technology to extract metals such as lithium, cobalt, manganese and nickel from old EV batteries and recycle them into new EV batteries. China has been able to produce electric cars with recycled batteries at scale and dominates in battery recycling.
Gordon Johnson, Founder of GLJ Research in New York, called the 100% tariff on Chinese EVs “purely political”. “There are virtually no Chinese EV cars imported into the U.S., so the tariffs on Chinese EVs are clearly an attempt from Biden to try to look tough on China in an election year. I liken it to drying the ocean by throwing a paper towel into it.” “All the evidence is very clear that the tariffs hurt American businesses and American consumers,” said Anthony Moretti, Associate Professor in the Department of Communication and Organizational Leadership of Robert Morris University in Pittsburgh. “And the frustration that I have, and I’m not alone in this, is that it’s a policy that does not work. And so why continue?”
The Biden Administration has made it clear that it wants more and more people to drive electric vehicles to reduce the use of fossil fuels and to help in the fight against climate change, Moretti said, and now “the best affordable EVs on the market come from China”. “It seems incompatible to, on the one hand, say we want people to drive electric cars but to then turn around and say we’re going to deny them access to some of the most affordable ones. I think it’s a failed policy,” Moretti added.
Gernot Wagner and Conor Walsh, Economists in the Business School at Columbia University in New York, echoed this view. They suggested in an article in The New York Times that despite the official justification of protecting U.S. manufacturers, the real aim is to appeal to voters in states such as Michigan, Pennsylvania and Wisconsin that will be critical in the presidential election in November. However, the tariffs will ultimately hurt middle-class consumers by limiting access to affordable EVs, they said. “With more cash and better credit, wealthy Americans are the only ones who can afford the electric vehicles currently on the market, which cost more than USD55,000 on average. Middle-class Americans should have access to these cars, and because of these tariffs they will remain a luxury, available mainly to the rich.”
Adding another layer of controversy is the potential violation of World Trade Organization (WTO) rules, said Donald Lewis, an international trade law expert and a non-resident research fellow with the Center for China and Globalization. “Governments should abide by their tariff bindings under the General Agreement on Tariffs and Trade, so you cannot raise tariffs above a particular level once the tariffs are set and each government agrees. “Unfortunately, since the Trump Administration there have been massive violations of the treaty, and the Biden Administration has followed suit. This is in violation of WTO law, which was established by the United States.”
Meanwhile, the European Commission is also considering to impose additional tariffs on Chinese EVs.Time is running out for Europe’s car companies to restructure their operations and product lines to compete with ascendant Chinese automakers, and stiffer tariffs will do little to protect the status quo, industry executives said. European trade regulators in Brussels have said they could levy new tariffs on Chinese electric vehicles based on the results of an investigation into Chinese government subsidies.
European Commission President Ursula von der Leyen said that Europe would take a “tailored approach” to its investigation and any potential duties imposed will be “correspondent to the level of damage”. It will inform those Chinese EV makers incurring provisional tariffs by June 5. Chinese carmakers, which have a 30% or more cost advantage over their European rivals, took 19% of Europe’s EV market last year, up from 16% in 2022, according to the Rhodium Group.
“The window is closing. From my point of view, we have two or three years. If we are not fast, it will be really tough for the German auto industry to survive,” Thomas Schmall, Board Member at Volkswagen, said at the Reuters Events Automotive Conference in Munich. “Today, it is no longer size that guarantees survival, but speed,” he said. Stellantis CEO Carlos Tavares said that carmakers “don’t have much time” to adjust their businesses and depended on the removal of “regulatory chaos and the bureaucracies that we have in our backyard”.
The surge in Chinese exports, and the prospect of Chinese factories within Europe, are forcing the continent’s automakers to explore partnerships with longtime rivals, turn up pressure on suppliers to cut costs, and intensify discussions with trade unions over the future of plants and jobs, executives said. Renault and Volkswagen last week pulled the plug on talks to develop lower-cost EVs over disagreements about where to make the car. Europe’s automakers are dealing with “a form of competitive asymmetry” not only with China but with the United States' clean vehicle subsidies, Renault CEO Luca de Meo said on the sidelines of the VivaTech summit in Paris. “In the end, the best thing you can do is to be competitive.” Stellantis is launching a small electric Citroen at €20,000, which Tavares said was “at the right price” to compete with Chinese automakers, the China Daily reports.
