By Tinglong Dai, Bernard T. Ferrari Professor of Business, Johns Hopkins University
In June 2019, then-presidential candidate Joe Biden tweeted: “Trump doesn’t get the basics. He thinks his tariffs are being paid by China. Any freshman econ student could tell you that the American people are paying his tariffs.”
Fast-forward five years to May 2024, and President Biden has announced a hike in tariffs on a variety of Chinese imports, including a 100% tariff that would significantly increase the price of Chinese-made electric vehicles.
For a nation committed to reducing greenhouse gas emissions, efforts by the U.S. to block low-cost EVs might seem counterproductive. At a price of around US$12,000, Chinese automaker BYD’s Seagull electric car could quickly expand EV sales if it landed at that price in the U.S., where the cheapest new electric cars cost nearly three times more.
As an expert in global supply chains, however, I believe the Biden tariffs can succeed in giving the U.S. EV industry room to grow. Without the tariffs, U.S. auto sales risk being undercut by Chinese companies, which have much lower production costs due to their manufacturing methods, looser environmental and safety standards, cheaper labor and more generous government EV subsidies.
Tariffs have a troubled history
The U.S. has a long history of tariffs that have failed to achieve their economic goals.
The Smoot-Hawley Tariff Act of 1930 was meant to protect American jobs by raising tariffs on imported goods. But it backfired by prompting other countries to raise their tariffs, which led to a drop in international trade and deepened the Great Depression.
Biden speaks at a podium with people standing behind him holding United Steelworkers signs.
President George W. Bush’s 2002 steel tariffs also led to higher steel prices, which hurt industries that use steel and cost American manufacturing an estimated 200,000 jobs. The tariffs were lifted after the World Trade Organization ruled against them.
The Obama administration’s tariffs on Chinese-made solar panels in 2012 blocked direct imports but failed to foster a domestic solar panel industry. Today, the U.S. relies heavily on imports from companies operating in Southeast Asia – primarily Cambodia, Malaysia, Thailand and Vietnam. Many of those companies are linked to China.
Why EV tariffs are different this time
Biden’s EV tariffs, however, might defy historical precedent and succeed where the solar tariff failed, for a few key reasons:
1. Timing matters.
When Obama imposed tariffs on solar panels in 2012, nearly half of U.S. installations were already using Chinese-manufactured panels. In contrast, Chinese-made EVs, including models sold in the U.S. by Volvo and Polestar, have negligible U.S. market shares.
Because the U.S. market is not dependent on Chinese-made EVs, the tariffs can be implemented without significant disruption or price increases, giving the domestic industry time to grow and compete more effectively.
By imposing tariffs early, the Biden administration hopes to prevent the U.S. market from becoming saturated with low-price Chinese EVs, which could undercut domestic manufacturers and stifle innovation.
2. Global supply chains are not the same today.
The COVID-19 pandemic exposed vulnerabilities in global supply chains, such as the risk of disruptions in the availability of critical components and delays in production and shipping. These issues prompted many countries, including the U.S., to reevaluate their dependence on foreign manufacturers for critical goods and to shift toward reshoring – bringing manufacturing back to the U.S. – and strengthening domestic supply chains.
The war in Ukraine has further intensified the separation between U.S.-led and China-led economic orders, a phenomenon I call the “Supply Chain Iron Curtain.”
In a recent McKinsey survey, 67% of executives cited geopolitical risk as the greatest threat to global growth. In this context, EVs and their components, particularly batteries, are key products identified in Biden’s supply chain reviews as critical to the nation’s supply chain resilience.
Ensuring a stable and secure supply of these components through domestic manufacturing can mitigate the risks associated with global supply chain disruptions and geopolitical tensions.
3. National security concerns are higher.
Unlike solar panels, EVs have direct national security implications. The Biden administration considers Chinese-made EVs a potential cybersecurity threat due to the possibility of embedded software that could be used for surveillance or cyberattacks.
U.S. Commerce Secretary Gina Raimondo has discussed espionage risks involving the potential for foreign-made EVs to collect sensitive data and transmit it outside the U.S. Officials have raised concerns about the resilience of an EV supply chain dependent on other countries in the event of a geopolitical conflict.
BYD targets EV sales in Mexico
While Biden’s EV tariffs might succeed in keeping Chinese competition out for a while, Chinese EV manufacturers could try to circumvent the tariffs by moving production to countries such as Mexico.
This scenario is similar to past tactics used by Chinese solar panel manufacturers, which relocated production to other Asian countries to avoid U.S. tariffs.
Chinese automaker BYD, the world leader in EV sales, is already exploring establishing a factory in Mexico to produce its new electric truck. Nearly 10% of cars sold in Mexico in 2023 were produced by Chinese automakers.
Given the changing geopolitical reality, Biden’s 100% EV tariffs are likely the beginning of a broader strategy rather than an isolated measure. U.S. Trade Representative Katherine Tai hinted at this during a recent press conference, stating that addressing vehicles made in Mexico would require “a separate pathway” and to “stay tuned” for future actions.
Is Europe next?
For now, given the near absence of Chinese-made EVs in the U.S. auto market, Biden’s EV tariffs are unlikely to have a noticeable short-term impact in the U.S. They could, however, affect decisions in Europe.
The European Union saw Chinese EV imports more than double over a seven-month period in 2023, undercutting European vehicles by offering lower prices. Manufacturers are concerned. When finance ministers from the Group of Seven advanced democracies meet in late May, tariffs will be on the agenda.
Biden’s move might encourage similar protective actions elsewhere, reinforcing the global shift toward securing supply chains and promoting domestic manufacturing.
Which us manufacturer is even going for the cheap ev market? They’re just focusing on suvs
It’s hard to not worry when these tariffs appear to only go after an area which no one will try to fill. Similar to the 70s when Japanese cars took off.
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I’m torn between my dislike of the CCP, and really wanting an EV for $12k.
Your local bike store should have a nice selection. I use my EV bike all the time and the car I keep for those few trips where the bike doesn’t work just sits… You should too. Don’t forget to check out the local transit options (and if - as is likely - they are bad demand better)
A 100% tariff is simply way too overkill. At this point it is not a tariff, but a straight up ban.
The aim of a tariff is making a fair competition between local products and imports, ultimately to lower prices for consumers.
What has been done here, is pure protectionism for the US companies that didn’t invest enough in EV.
In the EU where we actually have Chinese competition, the cheapest EU-made EV (Citroën eC3) start at 23000€ and multiple models at this price point are coming in the next few years (Renault 5, VW ID2…)
While I think in this case they won’t have an effect because no Amarican company is even trying to compete in the space, I feel like claiming “history says tarrifs rarely work” is pretty misleading. The high tarrifs caused by the US generating nearly all federal income by tarrifs in the 17 and 18 hundreds are after all widely credited with being the reason the northern US went from being a minor agricultural nation dependent entirely on european industrial goods to becoming one of the largest industrialized nations so quickly.
Indeed that was why the WTO blocking third world nations from putting tarrifs on western goods was so heavily criticized by the left a few decades ago, before China proved you could do it without said tarrifs so long as your competitors were greedy enough to outsource their industry to you.
Repeating “tariffs never work” doesn’t make it any more true. America was founded and developed industry by using a combination of tariffs and free real estate (stolen land) to fund development of the internal US economy. And it worked. Same with Canada’s National Policy in the 1800s.
See this makes sense to me. In good faith I don’t understand how tariffs couldn’t work. I mean, even if it doesn’t STOP import of Chinese EV’s, the uptake would be so much less than if they were 50% off…right?
History is rife with examples of countries developing their own industries by making imports more expensive.
You’re defining “work” as Chinese manufactured EVs having less market share. But if that means everyone that buys pays more for an EV and fewer EVs are sold, did it result in the most benefit for American citizens? What about the rest of the world’s population, in which situation is the net benefit greater?
You’re describing the standard neoliberal argument for free trade. It kinda makes sense on the surface, if you don’t consider its externalities such as its impacts on labor and domestic aggregate demand. Luckily you don’t have to guess what their effects are as you can see many of them in the US today. For example the rise of Trump and the desire to do away with the remains of the American democracy. Walking down that path to its end likely won’t result in maximum EVs in people’s hands.
You seem to have presented a non sequitur based argument.
I wasn’t making any positive claims. I was clarifying the terms of what one might consider “working”. And how we may want to consider how we value people without regard to geopolitical boarders.
Yeah maybe the problem is no one is describing what “work” means in this case. The goal is to reduce Chinese market share in the US EV market, protection of US industry ( lets be honest, probably the owners’ income stream). I don’t see that goal failing being likely.
If that’s all one wants to consider when evaluating the ethics of the policy in question, then it seems like the “correct” policy.
This is related, particularly as the discussion is to a large part around cheap cars:
China: Carmakers Implicated in Uyghur Forced Labor - (February 2024)
China’s electric vehicle battery supply chain shows signs of forced labor, report says - (June 2023)
The discussion is about 💵💵, not about people.
If tariffs were a response to human rights violations, check the UN’s list of HR violations, there should be thousands, or millions, of tariffs everywhere. But, there aren’t, because the HR are just an excuse that 💵💵 uses whenever it suits it.
2019 Biden was right, tariffs hurt everybody. Behind closed doors Biden knows that, but also knows what further helping the Chinese could mean down the road.
What could it mean? What’s the “nightmare scenario” here? The US has had a significant trade deficit with China for decades.
They get strong enough quick enough that they become geopolitically unstoppable. I don’t trust those guys to rule the world, or even have it sort of within reach.
Control it how? The US is as close as anyone has come to being a global hegemon and even then they can only do so much to nuclear states.
Yeah, the “sort of within reach” thing is more plausible. China in the role of 1970’s America still scares me. Hell, 1970’s America scares me, and they were too busy boomering to commit all that much to world domination.
Yeah but I’m still not clear on what the fear is exactly.
Like how do you envision it changing your life having China “in charge” vs the US?
I expect they’d treat us like we (the British empire) treated lesser foreign powers. They kind of already do, on the rare occasion they pay attention to little Canada. If they managed to gain direct power here, they’d treat us like the British treated their colonial subjects, or like the Chinese have already treated their westernmost minorities, and you can ask the Natives what that’s like.
Unlike America, they’re autocratic and openly, officially ethnocentric. That’s bad news for anyone not an elite Chinese person, and in the long term it’s bad news for even them, because purges.
they’d treat us like we (the British empire) treated lesser foreign powers
How’s that? Disadvantageous trade agreements? You already have those.
What would “direct power” look like? China invades Canada, a country defended by US nukes, with the PLA? There’s a reason Iran and North Korea are still around despite open animus from the US.
My point is largely that these nebulous fears of “Chinese hegemony” are just that–nebulous. Asking people to drill down into what they’re really afraid of either reveals the status quo or impossible scenarios.
Tarrifs are only a positive in cases where they are conditioned on labor, environmental, and other externalities being priced in and regional subsidies being countered. That seems like the case here.
But I suspect that the threat is being used as a negotiation tactic and China will call the bluff.
Random thoughts…
Odd to talk about timing without referencing the election year.
Protecting the solar industry with tariffs in 2012 was probably too late. The US and Europe panel industries were decimated and effectively ceded the market to China.
China bankrupted the only US supplier of rare earth metals in the early 2010s (Molycorp).
There is reporting from April that Chinese EV are piling up in European ports and not being moved to dealers.