Why Washington’s new tariffs on Chinese clean tech goods matter
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Joe Biden unleashed fresh tariffs on billions of dollars of Chinese goods on Tuesday, sharply raising the levies on clean energy imports including solar parts and electric vehicles.
It was a move designed to appeal to blue-collar voters in America’s electoral swing states — but one that will have ramifications far beyond the US, raising fears of deepening trade tensions between the world’s two economic superpowers.
The US president is not only keeping the tariffs on $300bn worth of Chinese goods that his predecessor Donald Trump imposed as part of his trade war against Beijing in 2018 but adding more, targeting strategic industries.
The measures include quadrupling the tariff rate on Chinese EVs to 100 per cent, doubling the levy on solar cells to 50 per cent and more than tripling the rate on Chinese lithium-ion EV batteries to 25 per cent.
Why is the US doing this?
With the US presidential election less than six months away, the Biden administration is stressing job protection as it pushes ahead with sweeping plans to reindustrialise the economy. Biden is especially keen to shore up union support in former industrial heartlands such as western Pennsylvania and Michigan.
The administration thinks the tariffs can be part of its strategy to build domestic supply chains in critical sectors like clean tech and EV manufacturing, supercharging the US industrial base, while protecting it from cheap Chinese imports.
The new tariffs follow other recent moves to protect US manufacturing and blue-collar jobs, including Biden’s opposition to the takeover of Pittsburgh-based US Steel by Japanese company Nippon Steel, and the president’s support for workers in strikes against car companies.
The Biden administration has also enacted billions of dollars of subsidies for green and clean industries, with tax credits designed to unleash a new wave of investment in clean tech manufacturing.
But US trade officials worry that China can produce its own subsidised goods so cheaply that it could undercut American manufacturers, while leaving American consumers and industries dependent on Chinese imports.
On Tuesday, Trump accused China of “eating our lunch” and said Biden should have put tariffs on Chinese EVs “a long time ago”.
Biden hit back at Trump: “He’s been feeding them for a long time,” he said, adding that his predecessor had done little to boost US exports.
What does this mean for electric vehicles?
The new 100 per cent tariff is aggressive, but it is more of pre-emptive strike by the US, which at present imports very few EVs from China — just $365mn worth in 2023, according to Capital Economics.
Moody’s estimates that only 16 per cent of the EVs made in China are exported, and the US isn’t even among the top 10 destinations for Chinese cars overall.
China accounted for 2 per cent of EV imports into the US — including plug-in hybrids — in 2023, according to the Center for Strategic and International Studies, a US think-tank. That compared to 22 per cent for Germany, 21 per cent for South Korea, and 18 per cent for Japan. Most of the rest of the US’s imports came from European countries and Mexico.
Leading Chinese carmakers such as BYD have shown little ambition yet to expand in the US as they focus their efforts on south-east Asia and Europe.
“We don’t have any indication from the headquarters that we have plans to develop the market in the US,” Michael Shu, managing director of BYD Europe, told the Financial Times’ Future of the Car Summit last week.
But former White House official Jennifer Harris said that reluctance might stem from Chinese manufacturers being aware of the threat of higher tariffs.
“I think they’ve been a bit holding their breath, knowing this was in the works,” said Harris. “Which is categorically not the case . . . in the European market.”
The tariffs could help pre-empt what analysts say could be a surge of cheap EVs as China’s manufacturing capacity pumps out more vehicles than the domestic market can absorb.
The new tariffs were about “getting ahead of an inundation of Chinese overcapacity in EVs”, Harris said.
Will other industries be more affected?
The US has already imposed steep tariffs on imports of Chinese solar parts — much to the concern of some installers who would prefer access to the cheaper units.
Meanwhile, the Inflation Reduction Act’s vast subsidies and tax credits are only available to developers that source their batteries and critical minerals from the US or trade partners — excluding China.
However, David Oxley, chief climate and commodities economist at Capital Economics, said that the tariff increase on lithium-ion batteries for EVs from 7.5 per cent to 25 per cent “could prove . . . meaningful” for a sector already struggling to keep down manufacturing costs.
The 17.5 percentage point increase in tariffs could “have a significant impact on their competitiveness in the US”, he said of the battery makers.
According to BloombergNEF data, average battery pack prices made in the US were 11 per cent more expensive than those made in China in 2023.
Close to 80 per cent of battery and solar module manufacturing supply chains were located in China in 2023 along with more than 60 per cent of the global wind power supply chain, according to the International Energy Agency.
Will the tariffs hurt US companies and consumers too?
Analysts say that without competition, EVs in the American market will become more expensive, and manufacturers less competitive, stunting the sector.
“It will decelerate the growth of EV adoption in the US,” said Shay Natarajan, partner at Mobility Impact Partners, a private equity fund. “It risks making US automakers much less competitive in the automotive markets outside of the US, where Chinese EV [companies] can win based on price and technology.”
Citi analysts also note that the US is “heavily dependent” on Chinese batteries for the fledgling American EV industry, with Chinese batteries accounting for more than 70 per cent of those imported last year, up from less than 50 per cent in 2018.
Chloe Herrera, lead battery analyst at Lux Research, said raising tariffs on the materials and components of EV batteries — such as graphite — “is really going to be a killer”.
She added: “It’s kind of unavoidable that the costs of those EVs are going to go up.”
The new Biden tariffs also impose levies of 50 per cent on Chinese semiconductors, affecting everything from mobile phones to laptops and cars and medical devices.
Over the next three to five years, China was expected to account for almost half of new capacity coming online for “legacy” semiconductor chips — larger chips used in consumer goods — according to the White House.
What can China do in response?
China could launch retaliatory tariffs on US goods or a case at the World Trade Organization in Geneva to argue that Washington is breaking global trade rules. Beijing has already launched a case at the WTO saying that US EV subsidies are “discriminatory”.
China’s dominance of clean tech supply chains also means Beijing has the potential to curb US access to scores of resources, materials and technologies critical to the American economy — everything from smartphones to the minerals needed for batteries. That could reignite a trade war.
Wang Wenbin, a spokesperson for China’s ministry of foreign affairs, said on Tuesday that “China consistently opposes unilateral tariff increases that violate WTO rules and will take all necessary measures to safeguard its legitimate rights and interests”.
Citi analysts predict that Beijing would “likely be restrained and calibrated in potential retaliation” and was unlikely to hit US companies operating in China.
How has Europe reacted?
The Swedish Prime Minister Ulf Kristersson said it was a “bad idea to start dismantling global trade”, while German Chancellor Olaf Scholz said European manufacturers were “successful in the Chinese market”.
But Europe now risks being caught in the middle of two global economic heavyweights on the verge of further serious trade conflict. Europe is currently carrying out its own antidumping review of Chinese EVs.
Joseph Webster of the Atlantic Council said the US tariffs might “force Brussels’ hand”. “Brussels will have to act quickly, either to put its own tariffs in place or to accept a flood of Chinese-made products.”
Additional reporting by Amanda Chu in New York, Claire Bushey in Chicago, Ed White in Shanghai, Kana Inagaki in Tokyo
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