The United States is not a fan of Chinese manufacturing. They have imposed new tariffs on several Chinese goods, including EV's, batteries, solar cells, steel, aluminum and medical equipment. While President Biden eluded to that fact that it will keep American manufacturing strong, it is clearly intended to protect U.S. jobs by addressing concerns related to practices and market dynamics.
China's manufacturing sector is enormous. In 2018, they accounted for at least 25% of the worlds global manufacturing. With manufacturing output of over $4 trillion, followed by the United States at $2.3 trillion.
Historically, China has not been a good manufacturer of quality vehicles — in fact, even though they produce 25% of the worlds goods, they produced only 2% of exported vehicles (in 2013). But all that changed with the rise of electric vehicles. Since then, the Chinese government has been heavily investing in the EV sector and subsidizing the industry and the vehicles they are producing are now considered to be high quality and pass US safety standards.
US Tariffs on China
For years, the US has been attempting to safeguard its manufacturing sector from Chinese competition. In 2018, the Trump administration imposed tariffs on Chinese goods such as steel and aluminum. This approach has been continued by the Biden administration, which has implemented tariffs on Chinese batteries and solar cells. Additionally, the US is investing in new technologies and industries to bolster its manufacturing capabilities.
Recently, the Biden administration imposed a 100% border tax on electric cars from China. In response, China expressed its opposition and stated it would take necessary measures to protect its interests. Analysts suggest that these tariffs are largely symbolic and aimed at gaining voter support for the 2024 presidential election. President Biden emphasized that he would not allow China to "unfairly control the market for electric vehicles and other key goods, including batteries, computer chips, and other basic medical supplies."
Arguments FOR the EV Tariffs
Protecting American manufacturers: Lower-priced Chinese EVs could flood the U.S. market, harming American EV companies that are still developing their technology. This could stifle innovation and job growth in the American EV industry.
Countering unfair trade practices: China heavily subsidies to give their EV manufacturers an unfair advantage. CSIS estimates that up to 21% of every EV is (essentially) paid and subsidized by the Chinese government. Compare this to the USA that is estimated to subsidize up to 2% of the cost to manufacture their passenger vehicles. These subsidies can make Chinese EVs cheaper to produce and sell, potentially undercutting American competitors and engaging in monopolistic practices.
Preventing a "dumping ground": The U.S. is concerned that China's excess production of EVs could be sold at lower prices in the U.S., harming American businesses. This is especially relevant as China's global EV exports are rising rapidly.
Arguments AGAINST the EV Tariffs
It's a tax on other Americans, not China: While the intention behind tariffs on Chinese electric vehicles might be to support domestic industry and reduce trade imbalances, the reality is that these tariffs often end up being a financial burden on American consumers and businesses. They lead to higher prices, reduced competition, potential supply chain disruptions, and broader economic inefficiencies. In essence, these tariffs can act as a tax on Americans, affecting their purchasing power and the overall health of the U.S. economy.
Stifles Competition: Protectionist tariffs shield American EV companies from competition. Imagine for a moment that Chinese EV's are better than American ones. American manufacturers would need to innovate and improve drastically or sink.
Trade War Escalation: Tit-for-tat tariffs between the U.S. and China could lead to a trade war, impacting a wide range of products beyond EVs. This could harm both economies and consumers.
“Collecting more taxes than is absolutely necessary is legalized robbery.” - President Calvin Coolidge
China EV Sales Rank, May 2024
Cost converted from ¥Chinese Yuan to $USDTariffs won't be enough. They will need a multifaceted approach amongst ally nations
The US governments position is that tariffs will counter a flood of Chinese EV's as they look to export and compensate for weak demand within China itself. The struggle with this opportunity is tariffs won't change Chinese behavior. The more probable goal of the tariffs is to bring a more united front and bring in more strategy with allies, as Secretary Yellen suggested as she was on her way to confer with G7 finance ministers in Frankfurt.
If the US and allies can strategize a common front against Chinese EV exports, it may signal China that their strategy of export-driven-growth will not be viable if major markets increase barriers and costs. This could lead to a more balanced trade and a more competitive market.
However, some markets may not be as willing to follow the US's lead. While Chinese manufactured EV's represent only 1-2% of the US EV imports, Chinese EV's represent over 20% of Europe's EV imports. If the EU does impose a significant tariffs on Chinese EV's, it would certainly raise costs for consumers and slow the adoption of EV's in Europe. All at a time where Europe looks to get off fossil fuels and become energy independent.
The US decision to basically tariff Chinese EV's out of the US would also force China to focus on other markets that the US already has a foothold in such as South America, Africa and Europe
In summary, the tariffs will not work in isolation. They will not fully achieve their objectives alone. The US would be better served to apply a short-term tariff while American competitors get a slight head start matched with positive inducements, new trade arrangements, and ultimately, a better product that would change the course of American auto manufacturing.