Three major impacts of the U.S. imposing a 100% tariff on Chinese EVs


(Photo: iStock)

The Biden administration recently announced a significant increase in tariffs on Chinese imports, particularly raising tariffs on EVs to 100%. This move aims to ensure the stable development of the U.S. automotive industry. However, analysts believe that the potential ripple effects may not necessarily be beneficial for the United States.

Impact 1: Chinese cars relocated to Mexico for production

Firstly, Chinese electric vehicles (EVs) may seek alternative routes to enter the U.S. market, such as through Mexico. Under the United States-Mexico-Canada Agreement (USMCA), vehicles produced in Mexico could be exempt from tariffs if they meet the required percentage of North American-made components. Many Chinese automakers have already established a presence in Mexico; in fact, just hours after Biden announced the new tariffs, Chinese EV giant BYD launched a new hybrid pickup truck, the "Shark," in Mexico.

Dan Hearsch, co-leader of AlixPartners’ Americas automotive and industrial practice, believes that the protectionist effect of increased tariffs is only short-term and will not prevent Chinese EVs from entering the U.S. market. " They’re going to be here. It’s inevitable. Western automakers, Western suppliers really ought to be upping their game and preparing to take this on or play with them.," he said.

In response, US trade representative Katherine Tai said that they are mindful of this risk and there will probably be future efforts to head off tariff evasion problems.

The day Biden announced raising tariffs, BYD also launched its first pickup truck in Mexico.  (Photo: BYD)

Impact 2: Hinderate proliferation of EVs in the U.S.

Secondly, the U.S.-China clean-technology trade war hampers Biden's efforts to promote the adoption of EVs.

The scope of Biden's tariffs extends beyond Chinese-made EVs, affecting other products such as steel, aluminum, semiconductors, and solar cells, with a total value of up to $18 billion. This includes a 25% tariff on Chinese-made batteries and certain EV components.

The Chinese government has declared its intent to defend its interests, escalating the trade war and potentially increasing global EV costs. This may dampen consumers' willingness to switch to EVs, thereby impacting the U.S. EV adoption rate and efforts to combat global warming. Compounding the issue, Biden faces pressure from traditional automakers and electoral challenges.

In mid-March, the U.S. reduced its target for EVs' share of new car sales. The initial plan aimed to increase this share from 8% to 67% by 2032, but the new target nearly halves this to 35%. Additionally, there is no longer a requirement for automakers to fully transition to EVs to meet carbon reduction goals. Analysts widely believe that Biden, under the pressure of his reelection campaign, has yielded to the demands of traditional automakers and labor groups to prevent further job losses during the EV transition.

Joe Biden signed the document ordering the raising of tariffs on some imports from China on May 15. (Photo: The White House)

Impact 3: Less reliance on China with the increasing attraction of Thailand

As the U.S.-China trade war over EVs intensifies, attention is also turning to industry leader Tesla. To reduce its reliance on China, Thailand may emerge as the next location for Tesla's gigafactory. Known as the "Detroit of Asia," Thailand's skilled labor force has already attracted many international automakers. Craig Irwin, an senior analyst at Roth Capital who covers Tesla, stated, "Thailand has the potential to achieve low-cost production of automotive parts similar to China, continuing Tesla's supply chain from Shanghai."

However, Biden's aggressive stance against Chinese EVs is widely viewed as politically motivated. According to the China Association of Automobile Manufacturers (CAAM), in 2023, China exported fewer than 75,000 vehicles to the U.S., accounting for less than 2% of its total automotive exports. This indicates that Chinese-made EVs sold in the U.S. are still relatively few.

The New York Times analysis suggests that Biden's shift from previously criticizing former President Trump's hardline stance on China aims to leverage government investments in EVs and other green technologies to create middle-class jobs. This strategy is intended to help Biden gain more votes in swing states, where these industries are concentrated, thereby boosting his chances of winning against Trump in the upcoming reelection campaign.

Source: ReutersGuardianCNBCNew York Times

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