What to know about Biden’s new tariffs on Chinese EVs, solar cells, and more
It’s open season on seagulls. On Tuesday, the Biden administration announced sweeping tariff increases on China across a range of strategic industries, including quadrupling tariffs to 100 percent on electric vehicles (EVs), such as the low-priced Seagull EV from Chinese automaker BYD. Other industries that the new tariffs impact include lithium-ion batteries, semiconductors, aluminum and steel, solar panels, and medical products. The changes are designed to take aim at China’s nonmarket trade practices and overcapacity, while boosting US industries. To decipher what’s behind the move and what to expect next, we put five burning questions to our experts.
1. What is the Biden administration trying to accomplish with these tariffs?
The Biden administration’s objectives are threefold. First, it seeks to foster the growth of the fledgling US clean energy complex against Chinese rivals, many of which have received vast subsidies from national, provincial, and local governments.
Second, and relatedly, the tariffs aim to ensure that clean energy technologies are not dominated by a sole supplier. This action reduces the probability that a single entity can establish control over vital technologies such as EVs, lithium-ion batteries, and other products.
Third, the tariffs may slow China’s development of certain dual-use technologies that have latent military potential. Lithium-ion batteries, for instance, are used for not only EVs and electricity grid storage, but also for military applications such as diesel-electric submarines, aerial drones, and unmanned maritime platforms.
The tariffs will, all else being equal, curb China’s industrial capacity, which could be repurposed for its defense industrial base. They will also reduce the probability that China will be the first to make technical or commercial breakthroughs in battery technologies, such as solid-state batteries, that could be military game-changers.
—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center, where he leads the center’s efforts on Chinese energy security.
Fundamentally, Biden administration officials are trying to avoid repeating the mistakes of past decades when, they believe, the United States (and its allies) did not do enough to counter China’s unfair trade practices until it was too late and Chinese products flooded markets and cost jobs. Now they want to get ahead of the curve, especially on EVs with a staggering 100 percent tariff. It’s worth noting that only 1 percent of all US EV imports currently come from China—so this is about the future, not about now.
It’s not that China hasn’t been creating overcapacity for decades; it’s that the sectors China is now doing it in are considered critical for national security. That is what is driving so much of this reaction.
—Josh Lipsky is senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.
The Biden administration has made several large strategic bets in industrial policy around semiconductors, EVs, solar, and infrastructure investment. As the administration has sought to onshore productive capabilities throughout these supply chains, one looming concern has been overcapacity and the potential for gluts of cheap imports shuttering newly built US plants. In many respects, these tariffs are preventive measures to guard against that possibility. By taking preventive measures, rather than post hoc remedies, the administration may also be trying to signal to the private sector that any investments they make in onshored critical supply chains will be protected from wild price swings. In this regard, this slate of tariffs attempts to make the long-term math on supply chain resilience work.
—Sarah Bauerle Danzman is a resident senior fellow in the GeoEconomics Center’s Economic Statecraft Initiative.
The Biden administration has two main goals. The first is protecting infant or currently undeveloped industries supported by the Inflation Reduction Act and other efforts. The second is protecting US critical supply chains, such as for personal protective equipment, the importance of which became clear during the COVID-19 pandemic.
Posing the announcement as the outcome of the long-running, multiyear investigation under Section 301 of the 1974 Trade Act, the Biden administration believes that its tariffs will be much more effective than Trump-era tariffs, which the Biden team believes inadvertently caught intermediate goods that hurt US producers. These tariffs will be more targeted to the two goals above. For example, semiconductor tariffs are expected to be on imports of chips themselves, not final products that include semiconductors.
—David Hathaway is a nonresident senior fellow at the Atlantic Council’s Global China Hub and principal for China at the Asia Group.
2. What will be the practical effect on the affected industries in the United States and China, and on the fight against climate change?
In the short term, this will likely raise the price of key clean energy goods, or at least prevent these goods from decreasing as quickly in price as they otherwise would. However, emerging markets could very well be flooded with extremely cheap clean energy items from China, which could help them in their energy transition, but might also be seen as threatening from the perspective of the United States.
—Sarah Bauerle Danzman
Due to existing high tariffs, there is virtually no trade in EVs between the United States and China. But China is, by far, the largest exporter of lithium-ion batteries to the United States. Chinese imports are especially consequential for grid storage that complements intermittent solar power. Consequently, and depending on details of the tariffs, US efforts to decarbonize its grid could slow down.
Certain critics of the tariffs will likely decry their impact on the US electricity grid. But the reality is it’s too soon to say how the tariffs will impact the global fight against climate change, in either the short term or the long term. In the short term, higher US tariffs will divert certain clean energy products to other markets, including China’s own domestic market. It’s possible that short-term trade diversion could actually deliver a higher environmental return on investment, given global carbon emission patterns. For instance, deploying solar and battery storage projects in certain coal-addicted Chinese provinces would deliver greater climate benefits than, say, installing more clean energy capacity in California. Over the long term, the tariffs could deliver climate benefits by preventing a single country from forming its own clean energy cartel. The Chinese government has a long history of using economic coercion to achieve its desired political ends. It is naïve to believe that Beijing would not exercise this same leverage in certain clean energy fields.
—Joseph Webster
It’s worth noting that tariffs on several major ticket items, such as lithium-ion batteries, don’t kick in until 2026. This gives some adaptation time but also signals that the United States doesn’t think this policy will actually change China’s behavior.
—Josh Lipsky
There will likely be impacts to affected US industries, which could indeed complicate US efforts on climate change. The announcement included tariffs on some batteries, for example. For China, the tariffs, if effective, may blunt China’s ability to trade in products seeing heavy overcapacity, although Chinese producers will likely seek to shift to other markets, including in Europe. (See more below.)
—David Hathaway
3. How will this move affect the broader economies of both countries?
Tariffs on Chinese EVs will have comparatively little impact since US consumers are not buying many Chinese EVs. Economic impacts are more likely in other sectors in which replacements for Chinese products are considerably more expensive. However, the administration likely believes that the tariffs are necessary to support its goals to protect key industries, increase capacity via friendshoring, and secure critical supply chains.
—David Hathaway
Tariffs do create deadweight loss, so we can expect them to exact some costs on the US economy. The Biden administration has insisted that this approach to tariffs is more targeted and less inflationary than the across-the-board tariffs that former President Donald Trump has proposed. The tariffs have a couple of years to set in, which may help with adjustment. And, as mentioned above, the certainty in price protection that these tariffs afford producers could induce new investments in the US supply chains for these items.
—Sarah Bauerle Danzman
4. How might China react?
China won’t be shocked—in fact, it’s likely that US Treasury Secretary Janet Yellen and US Secretary of State Antony Blinken previewed this announcement on their respective trips there in April. China will, as is typical, play a long game—and accelerate its own reshoring policies as it tries to expand production in a range of countries, including Mexico. The United States is aware of that strategy, and that’s why you’ll see a lot of shuttle diplomacy between Mexico City and Washington ahead of the United States–Mexico–Canada Agreement renewal in 2026.
—Josh Lipsky
China has likely already baked such actions by the United States into its thinking. It must already understand that actions on trade are to be expected in the run-up to the US presidential election in November. However, the Biden administration is certainly expecting some form of material retaliation, likely below a level that could be considered escalatory. There is an awareness that one Chinese industry response may be to shift production to places such as Southeast Asia and Mexico. I understand that the US government is working actively with partners to prevent this.
—David Hathaway
I expect the Chinese government to consider more export controls on raw and processed critical minerals. The problem is that this might create short-term supply constraints for the United States. But the Section 301 tariffs cover some of these minerals, and so such moves will only further help the administration achieve its goals of independence from Chinese supply.
As David mentioned, Chinese companies are likely to try to invest in third markets to serve the United States and other protected markets. Attempts to build EV battery plants in places with trade agreements with the United States, such as Mexico, will further push Washington to engage with partners to shore up their investment regulatory regime. The United States may also start thinking about how to address ownership and control issues in its supply chain, especially since rules of origin through which tariff rates are set are based on the location of production, rather than on who ultimately owns that productive capacity.
—Sarah Bauerle Danzman
5. How does the US approach compare with Europe’s?
That’s the million- or trillion-dollar question. If Europe and the Group of Seven (G7) countries match or mirror US policies at the summit in Italy in June, it may cause Beijing to realize that this time is different. On the other hand, if Europe hedges coming out of its own antidumping review, it could affirm China’s view that their challenge is primarily with the United States, not the rest of the advanced economies. The next few weeks will be telling.
At the same time, the United States is not only going to rely on the G7 here. Watch for coordination with countries that have been skeptical of the United States, including Brazil, because they also share a concern about Chinese overcapacity.
—Josh Lipsky
I really hope that the United States provided ample notice to Brussels about this move. The Europeans are currently undertaking their own anti-dumping review of Chinese EVs, and their market is far more vulnerable to Chinese EV imports than the United States’.
Europe is a bit handicapped compared to the United States when it comes to a more forceful use of tariff policy. The Biden tariffs arising from this Section 301 review are quite prospective in nature; they are anticipating a problem and applying tariffs preventively, particularly with respect to EVs. Additionally, the United States is able to pass well-funded industrial policy measures to further aid domestic production. The European Union (EU) has traditionally been more attentive to World Trade Organization rules around when and how to apply tariffs, and generally needs evidence of actual, realized harm before it acts. This means that EU producers will have to be hit hard by Chinese imports before the EU is likely able to act to protect them. Additionally, the intra-EU politics of industrial policy is much more complicated than in the United States, which further limits its scope of action.
—Sarah Bauerle Danzman
The tariffs may force Brussels’ hand, since higher tariffs in the United States on Chinese goods could result in substantial trade diversion to Europe. Brussels will have to act quickly, either to put its own tariffs in place or to accept a flood of Chinese-made products.
—Joseph Webster
Further reading
Sun, Apr 7, 2024
Ursula von der Leyen set Europe’s ‘de-risking’ in motion. What’s the status one year later?
New Atlanticist By Jörn Fleck, Josh Lipsky, David O. Shullman
The European Commission president presented a new economic vision for the European Union’s relationship with China in March 2023.
Mon, May 13, 2024
What US tariffs on Chinese batteries mean for decarbonization—and Taiwan
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In response to Beijing’s attempts to cement its dominant position across the “new three” technologies of solar photovoltaics (PVs), electric vehicles (EVs), and batteries, the Biden administration is poised to issue tariffs on key Chinese products. A look at China’s battery exports, and its associated battery complex, reveals both opportunities and risks for US and allied […]
Thu, May 9, 2024
China builds more utility-scale solar as competition with coal ramps up
EnergySource By Joseph Webster
China's transition to more utility-scale solar installations furthers its decarbonization efforts. However, regional resource limitations, limited interprovincial electricity transfers, and cheap coal present structural and economic headwinds.
Image: People use their phones in front of the BYD Seagull that is displayed at the Auto Shanghai show, in Shanghai, China April 19, 2023. REUTERS/Aly Song