The 100% Tariff on Chinese EVs Is a Double-Edged Sword, and Americans Will Pay the Price

The Biden Administration announced 100% tariffs on Chinese EVs 7 photos
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The recently announced tariffs on Chinese goods, including a 100% tariff on electric vehicles, mark a new phase of what will soon be a full-blown economic war. Many argue that raising tariffs on Chinese EVs won't change much because very few were imported into the US anyway. However, they will cause more problems down the road, including for American carmakers and the Americans. But they are not only necessary but inevitable.
It's election year, and presidential candidates pull all the stops to ensure victory. What President Trump started during his term at the White House is now pushed to the limits by the Biden Administration. A 100% tariff on electric vehicles is an effective way to ensure no Chinese-made electric car will be sold in the United States.

However, the current 25% tariffs were just as effective, with very few Chinese EVs reaching the US shores. From this point of view, the new tariffs are more of a statement than a tool. However, they will start a chain of events that might lead to a world far different from what we know today. Not only because China will want to respond in kind, blocking American companies where it hurts them the most. But also because the tariffs will hurt American carmakers in the long term, and the American people will pay the bill.

History shows us that tariffs don't quite work in protecting domestic industry if it's in such bad shape that it cannot compete on its own. And Chinese electric vehicles are so good that it will take Detroit Three decades to catch up. That is if they are serious about competing. Tesla is the only American carmaker that can make compelling electric vehicles, but the new tariffs are hurting its business at every level. Ironically, Elon Musk was among those who feared Chinese carmakers the most and advocated for trade barriers to keep them at bay.

Because the new tariffs kill any hope that China could sell its vehicles in the US, a logical step would be to start manufacturing across the border, in Mexico or Canada. BYD, Tesla's main rival, is already looking for a location for its future Mexican factory. Preventing these vehicles from entering the US market will require additional protectionist measures. Not to mention that Chinese carmakers might set up production facilities on US soil. That's what Japanese carmakers did when they faced tariffs in the 1970s.

What are the new tariffs on Chinese goods that the Biden Administration announced?

Although the EV tariff increase from 25% to 100% was the highlight of this package, other goods were also impacted. Tariffs on steel and aluminum products increase from 7.5% to 25%, similar to those for Li-ion batteries and battery parts. From 2026, graphite, a mineral used in EV batteries, will also see a 25% tariff, up from 0% currently. The tariff rate on Chinese semiconductors will also double by 2025 to 50% from 25% currently.

Administration officials said tariffs for some of the goods were delayed to give US companies time to reorganize their supply chains. The new rates would apply to $18 billion in products from China, including solar panels and medical equipment. The measure adds to the duties imposed by the Trump Administration in 2018 and 2019 on $350 billion in imports from China. This seems to be the new norm for the US policy towards China. If given a second term, Trump said would impose at least a 60% tariff on all goods from China.

While Biden's tariffs look more targeted than what Trump did during his term, they still have the potential to make things difficult for everyone. Higher tariffs mean more expensive products, adding to the inflationary pressure. Reorganizing supply chains to avoid Chinese products will also take time and money. However, the bipartisan consensus on tariffs for Chinese goods shows that no one wants to look weak on China.

The new package raises the risk that China will retaliate, and that's exactly what the Chinese Government promised. This will hurt US workers in industries affected by upcoming tariffs China will undoubtedly impose. After 2018 Trump's protectionist measures, China retaliated by imposing tariffs on American soybeans. This wiped out the soybean industry and caused a shift in demand for Brazilian soybeans.

How will the new tariffs affect Americans?

As we've seen, raising the tariffs on Chinese EVs to 100% won't change much for American buyers. They haven't bought many Chinese EVs before and won't buy them in the future. Doubling the price of Chinese EVs won't put much of a burden on their budgets. But that was not the intention in the first place.

The tariffs are meant to prevent Chinese carmakers from flooding the US market with cheap, high-quality EVs. This should shield American companies from having to compete with them. However, the real effect is that they will keep American carmakers complacent. Instead of bringing innovative features to their EVs, they will continue to sell combustion vehicles and half-baked EVs for higher prices. That will undoubtedly affect US car buyers.

And that's not just for electric vehicles. The new tariff package includes a range of goods and raw materials crucial for a wide range of products. Raising the rates will make a lot of them more expensive, with potential ripple effects throughout the economy. The government is already struggling to keep inflation under control. Imagine what this will do when the effects trickle down from the supply chains to the final products.

In the long term, Americans will see more pressure when China will retaliate against the new tariffs. According to the Observatory of Economic Complexity (OEC), in 2022, the US exported goods worth $151 billion to China, supporting over one million jobs. The main products exported from the US to China were soybeans ($18B), integrated circuits ($9.61B), and crude petroleum ($6.9B). Targeting these products with new tariffs will affect their respective industries and, consequently, people working for these companies.

As you've guessed, tariffs open a Pandora's box with consequences far beyond those intended. And it's not guaranteed that the industries that were supposed to benefit from the tariffs will do so in the end. Chinese companies could still set up shop in countries unaffected by tariffs or even in the US. Then, they will push American companies out of the market simply because of their cheaper and better products.

Which carmakers are the most affected by the new measures?

Although there weren't many Chinese electric vehicles imported into the US, this doesn't mean that no carmaker will be affected. The tariffs directly affect Volvo and Polestar, both owned by China's Geely. The Polestar 2 and the Volvo S60, XC60, and S90 are produced in China. The Volvo EX30, which is expected to start deliveries in the US later this year, is also made in China. The new tariffs will make it impossible to sell in the US.

The Volvo EX30 is a special case, being the smallest EV model available to US customers. Despite the 25% EV tariffs, Volvo was confident it could sell it at a low starting price of $35,000. The 100% levy means its new price will start at $56,000, which is too high for people to consider it an option. The most expensive Tesla Model Y retails for $51.490, and that is before factoring in the IRA tax credit. The US customers can say goodbye to the idea of buying affordable electric cars.

Strangely, some of the most affected carmakers by the rate hikes are those that the tariffs were supposed to protect. The aim was also to make it less attractive for American companies to use Chinese batteries and battery components in their vehicles. However, this also increases costs for carmakers that rely on cheap battery cells and components from China.

Considering their reliance on Chinese parts, Ford and Tesla are among the most affected by this. Tesla uses Chinese-made battery cells for the Model 3 RWD and Model 3 LR AWD. Ford also uses Chinese cells for some variants of the Mustang Mach-E and F-150 Lightning.

As shown above, the levy on lithium-ion batteries and battery components will jump from 7.5% to 25% later this year. At the same time, tariffs for graphite, a mineral used in batteries, will increase from 0% to 25% in 2026. Considering that batteries make up about one-third of the cost of EVs, the new taxes will significantly increase carmakers' costs. For a Tesla Model 3, this could amount to almost $2,000.

It's unlikely that carmakers will be able to pass the new costs onto buyers. The market has already indicated how much people are willing to pay for electric vehicles, and carmakers responded with price cuts. Raising EV prices will not be an option without risking losing more market share. In this case, the biggest losers are the carmakers, which will have to sacrifice their margins and absorb the new tariffs.

The lack of competition at home will put US carmakers in peril everywhere

The tariffs will offer American carmakers a short respite and help preserve their margins while they are faking the EV transition. However, as they are stalling, the world is not standing still. Chinese carmakers will continue to innovate and improve costs, gaining market share in all other markets across the globe. That will affect not only their EV market share but their entire business because ICE vehicles and EVs are in direct competition.

Chinese carmakers will be fine with tariffs or no tariffs, considering the huge local market and other places on Earth where people want to buy affordable and high-quality EVs. Americans will still be able to purchase Chinese EVs when they are assembled in Mexico or even the US. Current tariffs won't prevent that unless new tariffs are instated for Chinese vehicles made in Mexico.

While Ford makes the most of its money in North America, GM and Tesla rely more on Asian markets, where they will compete head-on with BYD and other Chinese companies. With American carmakers scaling back their EV ambitions and Tesla pivoting toward robotaxis, these markets will be easy targets for Chinese carmakers. The world will still need electric vehicles because they have proved superior to combustion vehicles in almost every way. Just because American carmakers don't want to build them doesn't mean others won't.

Tesla is already feeling the pinch in China, even though its main production facility is Shanghai. Tesla's reaction to shrinking market share in China and abroad was to lower EV prices, engaging in a price war it cannot win. Tesla is a manufacturing efficiency and innovation champion, so imagine what will happen to the legacy carmakers, which cannot compete on price and features with Chinese companies.

The new tariffs threaten the green transition

Critics of the new tariffs point out that they target green technologies crucial to decarbonization. Besides cheap electric vehicles, these include solar panels and storage batteries. China has a commanding lead in clean technology and a vast trade surplus, but blocking these technologies through trade barriers will stifle adoption.

This is already visible in markets that tax solar panel imports, including the US. The tariffs have acted as soft bans that have pushed up deployment costs and made fossil-fired power generation more compelling. The European Union, which doesn't impose tariffs on solar panel imports, installed twice as many solar panels as the US in 2023, according to a BloombergNEF study.

However, the EV tariffs will play the most important part in this green transition. Transportation is responsible for almost 30% of US carbon emissions, and a slowing in EV adoption will significantly hamper decarbonization efforts. The lack of cheap electric vehicles, along with legacy carmakers walking back EV plans and Tesla switching to robotaxis, will make people reconsider buying electric cars.

Tragically, tariffs are inevitable and necessary

After discussing why tariffs are not good for American companies and the public, it's time to discuss why they are inevitable. The Biden Administration promoted them as a tool to jumpstart local production by encouraging American companies to divert from the Chinese-heavy supply chain. However, it doesn't say why this is not only necessary but inevitable.

Protecting local industry and American jobs is only a part of the problem, and tariffs will do a lousy job at that. Other reasons that were vehiculated include reducing trade imbalances with China and eliminating security risks from Chinese hacking. While imbalances are here to stay, security risks are more worrying. Data collection through connected cars could be a legitimate concern. However, American carmakers also use Chinese-made computer chips in their vehicles. They have, thus, the same security vulnerabilities as a BYD car made with the same chips.

Another reason to lean on protectionist measures is far more important than all others. Experts warn that we live in a pre-war world, and the conflicts brewing will require all the resources we can access. Local manufacturing is critical to bolster defense production in the darkest times. This proved crucial during World War 2 when civilian factories were quickly repurposed to make military equipment.

The Defense Production Act (DPA) is still in effect, allowing the Government to order US companies to make military equipment. The DPA was last used during the pandemic to make US companies build ventilators. However, the Act is useless if there are no factories to repurpose and the majority of production has been surrendered to China. Reshoring these production facilities is crucial before things get critical.

China has an enormous advantage right now, having subsidized its industry for years with the precise goal of deindustrializing the West. We have to do the same quickly if we want to stand a chance. Trade barriers and tariffs are just tools for achieving this goal, and this has nothing to do with protecting jobs or reducing trade imbalances. This is why we're about to witness a tectonic shift in America's trade policy, regardless of who wins this year's elections.
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About the author: Cristian Agatie
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After his childhood dream of becoming a "tractor operator" didn't pan out, Cristian turned to journalism, first in print and later moving to online media. His top interests are electric vehicles and new energy solutions.
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