US plan for China EV tariffs may backfire
The Biden administration’s plan to slap heavy new tariffs on Chinese electric vehicles (EVs) and batteries will provide temporary protection for US automotive jobs, but potentially at the expense of White House efforts to fight climate change.
Few Chinese-made EVs are sold in the US, so the immediate impact on consumers of higher EV tariffs would be minimal, analysts said. The White House also plans to more than triple tariffs on Chinese EV batteries and battery parts to 25%.
Graphite, permanent magnets used in EV motors and other EV minerals would get new 25% duties added. These tariffs could affect a broader range of vehicles.
President Joe Biden’s administration issued tailpipe pollution standards in April designed to drive the share of EVs up from 8% last year to as much as 56% by 2032 fight climate change.
Vehicle makers have warned that hitting the EV targets will be challenging, in part because some Biden administration rules deny federal subsidies to EVs that get too much content from China. Without access to lowercost batteries and battery materials made in China, EVs will be too expensive for mainstream US consumers, they have said.
US manufacturers exported 155,337 vehicles worth $6.3bn to China in 2021, according to the most recent US government data. China sent just 64,067 vehicles to the US in the same year, worth $1.45bn.
Most of the vehicles imported from China were sold under US brands, led by the Buick division of General Motors (GM).
At present, four vehicle lines sold in the US are made in China, according to government data: Ford’s Lincoln Nautilus SUV, the Buick Envision SUV, the Polestar 2 and Volvo’s S90 sedans. Polestar and Volvo are affiliates of Chinese carmaker Geely.
Chinese retaliatory tariffs that target US vehicles could hurt workers at the BMW factory in Spartanburg, South Carolina, which sends about 25,000 vehicles to China each year, or the Mercedes-Benz plant in Alabama, which builds electric SUVs for the world’s largest market.
A clean-technology trade war between the US and China could also drive up the costs of EVs, batteries and other hardware, keeping prices high, industry executives and some analysts said.
EVs from US brands, such as the Mustang Mach-E or Tesla Model 3, have 30%-51% Chinese content, according to US transport department data.
“From the battery, from the mining, from all the technology integration, the Chinese supply chain now is the leading supply chain. It’s the best,” Stella Li, the head of BYD’s operations in the Americas, said at the Milken Conference last week. “Why don’t you allow a US company to have the freedom to choose?”
BYD is a Chinese EV and battery maker.
Even before Biden’s action on Tuesday, EVs had taken a central position in the US presidential race. They are now symbolic in partisan debates over climate policy and how the US should respond to China’s efforts to dominate critical technologies in the 21st century.
PLAYBOOK
Democrat Biden and his presumptive Republican opponent Donald Trump agree on very little, except when it comes to using steep tariffs and other trade barriers to keep Chinese EV makers out of the US market. Biden and Trump are betting that anti-Chinese trade policies will appeal to voters in swing states such as Michigan, Wisconsin and Pennsylvania, which depend on manufacturing jobs.
Experts are divided over whether stronger tariff protection will help US carmakers in the long run, or work to the benefit of consumers.
“The tariffs buy important time,” said Michael Dunne, a consultant who has watched the Chinese automotive industry for years. “The US is five to seven years behind China when it comes to EVs and battery supply chains.” China protected its carmakers in the 1990s and 2000s, Dunne said. “US political leaders could rightly say we are just borrowing a page from China’s playbook.”
Advocates of speeding up the pace of EV adoption to cut US carbon dioxide emissions warn that reducing pressure from Chinese EV manufacturers will backfire.
In the longer term, Detroit vehicle makers sheltered from Chinese competition could replay the experience of the 1970s and 1980s, when restrictions on imported Japanese cars gave the domestic vehicle makers a reprieve from lowpriced rivals.
Those trade barriers encouraged Toyota, Honda and Nissan to transplant their lean production systems to new US factories. The success of North American-made Japanese vehicles forced GM, Ford and the former Chrysler, now called Stellantis, to shed thousands of jobs and undergo painful overhauls in the 1990s.
BYD’s recent announcement that it plans to build an electric pickup truck in Mexico transforms a hypothetical threat into a real one for US incumbents. A Mexican-made EV with sufficient North American-sourced parts could qualify for tariff-free entry to the US market.
“If GM, Ford and Stellantis don’t have to compete against foreign companies that make EVs, they won’t make them.
“The market will go to BYD. And the Americans will lose market share like they did in the 1970s,” said Daniel Becker of the Center for Biological Diversity, an environmental group that has pushed the Biden administration for stronger climate policies.
It is not clear how China will respond to the US tariff moves. When Europe threatened to hike tariffs on Chinese-made EVs, China responded by threatening steep duties on French cognac.
GM president Mark Reuss last week downplayed the risk that Beijing could make life more difficult for its Chinese operations, which dipped into the red in the first quarter of this year. Two of GM’s biggest brands in China are US names: Chevrolet and Buick.
GM’s joint venture partners in China are SAIC and Wuling.
“For us in China this has been a great advantage to be partnered so deeply for so many years with our joint venture partners,” Reuss said.