Reported by Pulsestacks on May 15th
In a bid to flex its muscles, the Biden administration has once again played a new card.
This time, one of the targets of the "political big stick" is Chinese electric vehicles.
On May 14th, the U.S. government officially announced the imposition of tariffs on Chinese electric cars and other products.
The White House has announced plans to impose tariffs on $18 billion worth of products imported from China under Section 301 of the 1974 Trade Act. The targeted products include steel and aluminum, electric vehicles, semiconductors, batteries, critical minerals, solar panels, and cranes.
Specifically, the tariff rate for lithium-ion electric vehicle batteries will increase from 7.5% to 25% in 2024, while the tariff rate for non-electric vehicle lithium-ion batteries will start increasing from 7.5% to 25% in 2026. The tariff rate for battery components will also rise from 7.5% to 25% in 2024.
In a more drastic move, tariffs on Chinese electric vehicles will skyrocket from the current 25% to 100%. Prior to the Trump administration, the U.S. had a favorable tariff rate of 2.5% for imported electric vehicles.
Industry experts suggest that the current Chinese goods being targeted do not heavily rely on the U.S. market. While Biden's new tariffs on China may seem aggressive, they are largely symbolic. However, in the long term, it effectively diminishes the possibility of Chinese new energy vehicles entering the U.S. market.
Many Chinese automotive companies have ventured into international markets, but only a few have truly made a mark in the competitive American market. The recent imposition of tariffs by the United States serves as a double-edged sword, potentially harming American car manufacturers more than their Chinese counterparts.
Initially, the significant 25% tariff barrier had already kept Chinese cars largely out of the American market. In 2023, China's automobile exports surpassed Japan for the first time, with over 1.203 million new energy vehicles exported, marking a 77.6% year-on-year increase. However, the majority of these exports were directed towards Southeast Asia, South America, the Middle East, and Europe, with only slightly over 10,000 electric vehicles exported to the United States, accounting for less than 1% of the total exports.
According to data from the China Association of Automobile Manufacturers, in the first quarter of this year, Geely was the sole Chinese automaker exporting vehicles to the United States, with a modest export volume of 2,217 units. The market share of Chinese electric vehicles in the United States has plummeted to below 0.5%, indicating a minimal short-term economic impact of the increased tariffs.
Furthermore, the automotive industry is deeply interconnected globally, with various countries' brands collaborating extensively. Apart from the final products, components, and raw materials, the industry chain is already highly integrated globally. Data from the U.S. Department of Transportation reveals that American electric vehicles like the Mustang Mach-E or Tesla Model 3 contain 30% to 51% of components sourced from China. Imposing unjust tariffs for unilateral trade protection will ultimately lead to mutual harm, affecting both sides adversely.
Recently, the Biden administration announced plans to increase the market share of electric vehicles from 7.6% in 2023 to 56% by 2032. Achieving this goal will be challenging without Chinese-manufactured low-cost batteries and raw materials.
The immediate consequence of the U.S. tariff policy will be the escalation of costs for electric vehicles, batteries, and other hardware. If this triggers retaliatory tariffs from the Chinese government, it will exacerbate the situation. Expensive electric vehicles do not align with the fundamental interests of American consumers. Exorbitant prices will hinder the domestic electrification process in the U.S. and undermine efforts to combat climate change.
Therefore, the tariff escalation appears more as a political gesture rather than a substantial blow to Chinese automakers. However, it sends a dangerous signal, with Chinese companies more concerned about setting a negative precedent for the European Union and other regions.
In recent years, China's rapid development in key areas like electric vehicles has transformed from quantity to quality. The country's dominance in the global production of new energy electric vehicles, particularly in Europe, has placed significant pressure and challenges on the European automotive industry.
Statistics indicate that by 2023, China's share of new energy electric vehicle production globally will reach 60%, with its market share in the European electric vehicle market soaring from 0.4% in 2019 to 7.9% in 2023. Without constraints and interference from EU policies, by 2027, 20% of the EU's electric vehicles could originate from China.
Consequently, the EU initiated a "anti-subsidy investigation" policy against Chinese automobiles last year, aiming to determine whether additional tariffs should be imposed on Chinese electric vehicles. In March 2023, the European Commission began customs registration for imported electric vehicles from China, indicating that any tariff imposition would be retroactive to that time.
In response, Germany's Minister of Digitalization and Transport, Volker, expressed concerns about market restrictions, emphasizing that punitive tariffs by the EU could disrupt the competitiveness of German companies globally. Executives from German automakers BMW and Volkswagen also opposed the EU's punitive measures against Chinese new energy electric vehicles. They fear repercussions from China, which is a crucial market for German brands, and the potential threat to the EU's own "European Green Deal" initiatives.
The real crisis lies not in the U.S. imposing tariffs again but in the signal it sends to restrain the development of China's new energy automotive industry. In response, a spokesperson from the Ministry of Foreign Affairs stated, "China will take resolute measures to defend its own interests."
For Chinese automotive companies striving to expand globally, it is crucial to adjust their globalization strategies promptly. They must enhance their technical, product, and supply chain capabilities while studying local regulations and policies. Through innovative collaborations, strategic alliances, and localization strategies, they can prepare for a future where trade barriers may become the norm and be ready for a prolonged battle.
