US Tariffs on Made-in-China EVs Will Raise Prices, Slow Market Penetration

News that the Biden administration is raising tariffs on a raft of imports from China, including electric vehicles (EVs), prompted a flurry of speculation. Much of the chatter revolved around whether this was a move to burnish President Biden’s anti-China credentials in the lead-up to the 2024 US presidential election. On the face of it, this does appear to be the case.

China surpasses Japan as world leader in vehicle exports.

China exported around 5.3 million vehicles in 2023, boosted primarily by increased exports to Russia as Western OEMs headed for the exits and an avalanche of EVs shipped to Europe. In fact, China’s expanding presence in the European market has prompted the European Commission to launch an anti-subsidy investigation that could also lead to higher tariffs on Chinese EVs, currently standing at 10%. Incidentally, China also overtook Japan as the world’s largest car exporter last year.

Higher prices, higher emissions.

Even though the 100% duty on EVs exported to the United States is a significant hike from the previous 27.5% rate, Chinese automotive OEMs are more concerned about potential tariffs in Europe.

For one, China only sold around 100,000 vehicles in the United States in 2023, and these were mainly US and European brands that happen to be manufactured in China. The Buick Envision crossover, for example, is assembled at a joint venture of GM and Chinese state–owned automaker SAIC, while the Lincoln Nautilus crossover is assembled at the Changan Hangzhou plant.

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Further, two Volvo-made Polestar EV models are produced at a Geely plant in Daqing. Volvo was acquired by Chinese automaker Geely in 2010.

It's also worth noting that the majority of Chinese vehicles are not designed to US safety regulations, which is a time-consuming and expensive process. Nor are there any dealer networks. Consequently, the tariffs come across as a preemptive move to restrict future market access. 

If the tariffs remain in place for an extended period, their main effect will be to raise the price of EVs for the US consumer and hinder their proliferation, thereby threatening US emission-reduction goals. The entry-level BYD Seagull EV Honor Edition model, for example, sells for $9,700 in China versus $38,900 for the cheapest Tesla Model 3 in the United States. In addition, it is generally thought that Chinese EV prices would be competitive in the United States even if the import tariff were 50%.

BYD is planning a production plant in Mexico that could serve the US market and take advantage of the duty-free United States-Mexico-Canada trade agreement.

Vehicle tariffs just the start.

The United States also imposed higher tariffs on the import of lithium-ion batteries from 7.5% to 25%, which will make it even harder for US OEMs to churn out cost-competitive EVs given China’s dominance of the battery market. Under the Biden administration, the US government is spending hundreds of billions of dollars to scale up domestic manufacturing capabilities for EVs, semiconductors, and batteries that will bring back US manufacturing jobs. The country is prioritizing employment and self-sufficiency in an economy [partially] decoupled from China, which it sees as an unfair competitor subsidized by the state. 

Also included in the slate of higher tariffs are solar modules, raised from 25% to 50%. China has already shifted the majority of US-bound production to Southeast Asia, which is currently exempt from duties that are up for review in June. Semiconductor tariffs were also raised to the same rate. 

If the thought of much higher EV prices gives US consumers a sick feeling, they won’t find solace in hearing that the Biden administration is also raising tariffs on syringes and needles from 0% to 50%. Even that flu jab is going to be a bit harder to take.