China EV challenge should be met by US innovation, not tariffs
- Increase by Biden White House seems designed to win points for re-election, but will only delay the inevitable if American car makers fail to make up for lost time
Steep American tariff increases on Chinese new-energy products such as electric vehicles (EVs), lithium-ion EV batteries, battery parts and solar cells have long been heralded as the US presidential election draws closer. The two are not unconnected.
Beijing is right to say “the US side is coming from political considerations”. President Joe Biden, seeking re-election in November, is seen to be responding to fears of disruption to American markets and job losses from lower-priced imports, which would cost him votes and, possibly, the White House.
Biden’s tariffs on Chinese imports add only US$18 billion to the hundred of billions imposed by former president Donald Trump. Moreover, the quadrupling of the levy on EVs anticipates a surge in imports still in the pipeline, but the tariffs will be passed on to consumers and simply further protect American industry from competition and the need to innovate.
The tariffs are in retaliation for Chinese government subsidies and other support for the production of green products, leading to claims of “overcapacity”, and prompting an investigation by the European Union. The United States and the EU have made such an issue of it that overcapacity has become an overused word.
As Beijing points out, China is not alone in backing its own industries to boost its own economy and employment.
Under Biden’s plan, tariffs will rise to 100 per cent on Chinese EVs, more than double to 50 per cent on solar cells and triple to 25 per cent on lithium-ion batteries and parts.
Biden said Beijing “has poured state money to Chinese companies … pushing [them] to produce far more than the rest of the world can absorb, then dumping the excess products onto the market at unfairly low prices, driving other manufacturers around the world out of business”.
China, on the other hand, may argue that regardless of subsidies and the like from either side, its fundamental advantage in the mass EV market is that of first mover by default. It is not China’s fault that the US has developed no EV answer to China apart from Tesla.
And even Tesla – an established global brand – often finds itself outperformed by Chinese rivals, to the disquiet of US automotive capital Detroit. It may be only a matter of time before a Chinese EV challenge.
Tariffs will only be delaying the inevitable if US carmakers do not make up for lost time behind a tariff wall.
Meanwhile, Chinese EV maker and Tesla rival BYD is establishing a base for expansion with plans for a plant in Mexico, which has a trade agreement with the US and Canada. Ironically, it is sad that an automotive market with a respected record for high entry standards, such as that on emissions, now resorts to punitive tariff protection.
