Biden EV tariffs may not be enough to stave off the growing threat

US President Joe Biden announces increased tariffs on Chinese products to promote US investment and jobs in the White House Rose Garden on May 14, 2024 in Washington, DC.

Win Mcnamee | Getty Images

DETROIT – President Joe Biden's plan to quadruple tariffs on Chinese-made electric vehicles is unlikely to stave off the threat of more Chinese cars and trucks on American roads.

The 100% tariff announced Tuesday, an increase from the current import tax of around 25%, affects electric cars imported from China but could still leave room for the often cheap Chinese models to drive up domestic prices. undercutting and leaving loopholes for imports by Chinese automakers into other countries. countries, such as neighboring Mexico. It also does nothing to address current or future gas-powered vehicles imported into the US from the communist country

Auto and trade experts say the increased tariffs are a short-term protectionist act that may slow but will not stop Chinese automakers from coming to the U.S. with electric vehicles.

“They will be here. It's inevitable. It's only a matter of time,” said Dan Hearsch, Americas co-leader of the automotive and industrial practice at consulting firm AlixPartners. “Western automakers and Western suppliers should really step up and prepare to take this on or play with them. It's one or the other.”

The EV tariffs, including other increases related to battery materials, were among the new tariffs on $18 billion of Chinese imports.

Chinese competition

For decades, Chinese car companies have said they will sell vehicles under their own brands in the U.S., but none have succeeded.

The quality and construction of vehicles by Chinese automakers have improved significantly in recent years as the Chinese government has subsidized their operations to grow domestic production. The increase in the number of domestic car manufacturers has led to a rapid deterioration in market share in the country for global automakers such as General engines.

Their market share in the US is also under fire and threatened by global players. The so-called Big Three American automakers – GM, Ford engine and Chrysler, now owned by Stellantis – have seen their U.S. market share deteriorate from 75% in 1984 to about 40% in 2023, according to industry data.

GM and others have found it difficult to compete with cheap and mainstream Chinese vehicles, including electric vehicles. For example, a small EV from Warren Buffett-backed BYD, the Seagull, starts at around $10,000 and is reportedly turning a profit for the increasingly influential Chinese automaker.

Although the Seagull is not yet sold on American soil, BYD is expanding its vehicles globally, and some believe it is only a matter of time before more Chinese-made vehicles arrive in the US.

Even with the new 100% rate, the price would likely be in line with or better than many electric vehicles currently sold in the US

“Ultimately, we think that protectionism from the West may remain an overhang in the short term for Chinese EV/parts makers seeking rapid global expansion, but we think it is unlikely that this will slow China's EV boom in the long term hold back,” said Morgan Stanley analyst Tim Hsiao. said in an investor note this week.

Although some automakers are currently importing gas-powered vehicles from China into the U.S., the numbers are small. Wall Street analysts, citing the China Association of Automobile Manufacturers, report that fewer than 75,000 vehicles were imported from China to the U.S. last year

Vehicles made in China and currently sold in the US include GM's gas-powered Buick Envision, Ford's Lincoln Nautilus and two all-electric vehicles from Geely-owned Volvo and its spinoff EV startup North Star.

With a small range of vehicles, Polestar is mainly dependent on its Chinese imports. The company said in a statement that it is “currently evaluating the Biden administration's announcement of rate increases” and said it believes “free trade is essential to accelerate the transition to more sustainable mobility through greater adoption of electric vehicles.”

Green goals

Biden's focus on Chinese-made electric vehicles — and the exclusion of gas-powered vehicles from the higher tariffs — fits into his administration's clean energy agenda, which has emphasized high-volume production and adoption of electric vehicles, as well as a improved US charging infrastructure.

“EVs are where we focus when it comes to imposing tariffs because we have made hundreds of billions of dollars of public investment there. We made those investments to build resilience in our clean technology supply chains. And so that is our focus here,” a senior government official told reporters this week.

It's possible U.S. officials are taking a warning cue from Europe, where Chinese automakers have quickly flooded markets with gas-saving EVs and undercut domestic automakers.

Chinese companies accounted for 8% of European sales of fully electric vehicles in September and could increase their share to 15% by 2025, the European Union said in October 2023. The EU believes that Chinese electric vehicles will drive up the prices of local undercut models by about twenty percent. % on the European market.

The Biden administration's new EV tariffs could have a ripple effect on other countries, including in Europe, if they succeed in curbing Chinese exports, said Coco Zhang, vice president of ESG research at ING Group.

She said similar tariffs elsewhere could force Chinese companies to more quickly set up local manufacturing operations or joint ventures with other companies in an effort to reduce export costs.

“From China's perspective, if there are supply or other types of partnerships, they can still find their way into the US market,” said Zhang.

Such moves would be reminiscent of the way Japanese automakers such as Toyota Motor and Nissan Motor and South Korea's Hyundai Motor, including Kia, have entered the U.S. market in recent decades.

– CNBC's Rebecca Picciotto and Michael Bloom contributed to this report.

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