Explained: Why has Biden quadrupled US tariffs on Chinese EVs?

United States President Joe Biden has introduced tariffs on a range of Chinese imports , potentially triggering a trade conflict with Beijing. This move comes as the president aims to appeal to American voters with less than six months remaining before a closely contested election rematch with Donald Trump.

The tariffs cover $18 billion worth of imports, including steel, aluminum, computer chips, solar cells, cranes, and medical products. However, it is the 100 per cent tariff on Chinese-made electric vehicles (EVs) that has grabbed the headlines.

Justifying the move, Biden said that Chinese government subsidies ensure the nation’s companies don’t have to turn a profit, giving them an unfair advantage in global trade.

“American workers can outwork and outcompete anyone as long as the competition is fair,” Biden said in the White House. “But for too long, it hasn’t been fair. For years, the Chinese government has poured state money into Chinese companies…it’s not competition, it’s cheating.”

What is the reason behind the tariffs?

The tariffs are aimed at preventing underpriced Chinese exports from undercutting government investments in key manufacturing sectors. Biden’s national economic adviser, Lael Brainard, highlighted that these tariffs are essential to ensure that government-backed job creation efforts are not hindered by cheap imports from China.

Also Read: US is finally engaging China in talks about AI safety and risk, set to meet in Geneva

The US is worried about the possibility of inexpensive, subsidised Chinese products overwhelming US markets. This concern arises from the potential threat of these goods undercutting the significant government investments made in key manufacturing sectors through Biden’s Chips and Inflation Reduction acts.

In the electric vehicle market, reports indicate that China produces 30 million EVs annually but can only sell 22-23 million domestically.

The Alliance for American Manufacturing has warned that the influx of Chinese EVs into the US market would be catastrophic for American carmakers, describing it as an “extinction-level event.”

“We’re not going to let China flood our market, making it impossible for American auto manufacturers to compete fairly,” Biden said in his speech.

Will this move have any effect on Biden’s re-election bid?

Despite passing high-profile economic legislation, Biden has struggled to convince voters of its effectiveness. The White House hopes that the new tariffs won’t exacerbate inflation levels, which have already caused frustration among US voters, given the backdrop of low unemployment and strong economic growth compared to other Western nations.

While Biden has adopted a tough stance on trade similar to Trump’s, he argues that his measures are more focused and less likely to harm US consumers than those of his Republican rival.

Trump, who has suggested tariffs of 60 per cent or higher on all Chinese imports, criticised Biden’s new tariffs and proposed applying them to other types of vehicles and products. He has also threatened to impose even higher tariffs, up to 200 per cent, on Chinese-made EVs if elected in November.

China maintains the tariffs are in violation of the global trade rules the United States originally helped establish through the World Trade Organisation. It accuses the US of continuing to politicise trade issues and on Friday said the new tariffs compound the problems caused by tariffs the Trump administration previously put on Chinese goods, which Biden has kept.

Those issues are at the heart of November’s presidential election, with a bitterly divided electorate seemingly united by the idea of getting tough with China.

Biden has staked his presidential legacy on the US pulling ahead of China with its own government investments in factories to make EVs, computer chips and other advanced technologies.

Asked to respond to Trump’s comments that China was eating America’s lunch, Biden said of his rival, “He’s been feeding them a long time.” The Democrat said Trump had failed to crack down on Chinese trade abuses as he had pledged he would do during his presidency.

Trump tells his supporters America is falling further behind China by not betting on oil to keep powering the economy, despite its climate change risks. The ex-president may believe tariffs can change Chinese behavior, but he believes the US will be reliant on China for EV components and solar cells.

Also Read: Why Tesla layoffs could be bad news for Biden

“Joe Biden’s economic plan is to make China rich and America poor,” Trump said at a rally this month in Wisconsin.

How will the tariffs work?

The tariffs are to be phased in over the next three years, with those that take effect in 2024 covering EVs, solar cells, syringes, needles, steel and aluminum and more.

Chinese firms can sell EVs for as little as $12,000. China’s solar cell plants and steel and aluminum mills have enough capacity to meet much of the world’s demand, with Chinese officials arguing their production keeps prices low and would aid a transition to the green economy.

Under the findings of a four-year review on trade with China, the tax rate on imported Chinese EVs will rise to 102.5 per cent this year, up from total levels of 27.5 per cent, reported AP.

Under the 301 guidelines, the tariff rate is to double to 50 per cent on solar cell imports this year. Tariffs on certain Chinese steel and aluminum products will climb to 25 per cent this year. Computer chip tariffs will double to 50 per cent by 2025.

For lithium-ion EV batteries, tariffs will rise from 7.5 per cent to 25 per cent this year. But for non-EV batteries of the same type, the tariff increase will be implemented in 2026. There are also higher tariffs on ship-to-shore cranes, critical minerals and medical products.

The new tariffs, at least initially, are largely symbolic since they will apply to only about $18 billion in imports. A new analysis by Oxford Economics estimates the tariffs will have a barely noticeable impact on inflation by pushing up inflation by just 0.01 per cent.

What is the potential impact on the US market?

While the tariffs on Chinese-made EVs are not expected to immediately affect US consumers due to China’s minimal current presence in the US EV market, they are seen as a precautionary measure to prevent a future flood of Chinese EVs. There are concerns, however, that Chinese automakers could shift production to Mexico to bypass the tariffs, a move that the US is wary of and may address in the future.

Also Read: Joe Biden’s new China tariff wall faces leakage via Mexico, Vietnam

China has vowed to retaliate against the tariffs, raising concerns about escalating tensions between the two economic powerhouses. Biden, however, has stated that he does not seek a trade war and hopes to avoid undermining recent efforts to ease tensions with China.

With inputs from agencies