The U.S. is increasing tariffs on imports of Chinese electric cars

The Biden administration is sharply increasing tariffs on imports from China before the November elections, including electric vehicles, batteries, and semiconductors. The United States has decided to review tariffs, and this year will quadruple the tariff rate on Chinese electric vehicles to 100% and roughly triple the rate on steel and aluminium imports. The tariff on Chinese semiconductors will also double starting from 2025. The tariff on solar cells will double to 50% this year as well. The full announcement is available here, with specific examples of tariffs listed at the end of the article.

SALES OF CHINESE ELECTRIC VEHICLES WORLDWIDE AND ACTIONS BY THE EUROPEAN COMMISSION

Statistics clearly show the rapid growth of Chinese electric vehicle (EV) exports. In 2023, the total value of Chinese pure electric vehicle exports surged by 70%, reaching nearly 32 billion EUR. The EU accounts for almost 40% of Chinese EV exports, making it their largest global buyer, and all indications are that this number will continue to rise. The problem for the European automotive industry is the attractive offer for consumers: for example, in China, a mid-range SUV EV from the brand BYD sells for under 18,000 EUR (while in Germany, this small SUV sells for almost 40,000 EUR). For this price remains competitive with comparable electric vehicles on the market. Consequently, Chinese companies are primarily targeting exports because domestic price wars significantly burden their margins.

Meanwhile, the EU continues its anti-subsidy investigation against Chinese EVs. The investigation is conducted according to clearly defined rules of the European Commission (EC) and complies with international WTO rules, thus it is a fact-based and objective process with appropriate consultations with the involved parties. The first outputs, in the form of likely increased tariffs, can be expected as early as next month.

CHINESE "PRODUCTION OVERCAPACITIES" AND OTHER POINTS OF FRICTION

The issue of Chinese "production overcapacities" has recently become a buzzword. During her April visit to China, U.S. Treasury Secretary Janet L. Yellen did not spare criticism in this regard. The European Chamber of Commerce in China, with which the Confederation of Industry of the Czech Republic collaborates within BusinessEurope, addressed this issue in its 2018 report, and European businesses have repeatedly pointed it out. The report attributes the situation to regional protectionism in China and deficiencies in the regulatory framework, among other factors.

The Chinese side reacted irritably to the U.S. actions. They claim that they provide U.S. and EU companies with equal and non-discriminatory access to their vast market. However, according to statements from European companies operating in China, this is not entirely true. On the contrary, Chinese authorities actively support initiatives like "Buy local" and "Made in China 2025," which favour locally produced goods. For this reason, the EC also launched an investigation under the International Procurement Instrument (IPI) regulation, concerning measures and procedures of the People's Republic of China in the public procurement market for medical devices. It is possible that other sectors will follow.

To add, the EC also initiated its first investigation under the Foreign Subsidies Regulation (FSR) in Bulgaria in February 2024, targeting a Chinese state-owned company and potential distortion of competition in the EU internal market in the area of rail vehicles. Further FSR investigations are currently ongoing.

PROTECTIONISM VERSUS MAINTAINING COMPETITIVENESS

We do not wish for the escalation of a heated trade war; the Czech economy is open and export-oriented, and protectionist measures have historically undermined global economic growth. Similar to the confederation of European business, BusinessEurope, of which we are a member, we emphasize the need to continue mutual dialogue and communication. Despite all disagreements, China remains the EU's largest trading partner. The problem, however, is the deepening bilateral trade deficit, which reached a record 400 billion EUR last year.

For comparison, according to U.S. statistics, the United States imported goods from China worth a total of 427 billion USD last year, with their exports to China reaching 148 billion USD. The EU's exports to China in the same year amounted to approximately 198 billion EUR, while Chinese exports to the EU totalled about 598 billion EUR. The trade imbalance between the EU and the U.S. in trade with China is roughly comparable, but the announced U.S. measures are significantly more drastic. In both cases, this is one of the important topics of the upcoming elections (the European Parliament elections will take place early next month).

BusinessEurope, the Confederation of Industry of the Czech Republic, and the American Chamber of Commerce have long called for deepening trade and investment cooperation between the EU and the U.S. within the framework of the Trade and Technology Council (TTC).

HERE IS A SUMMARY OVERVIEW OF INDIVIDUAL TARIFFS:

• Steel and aluminium: the tariff on some steel and aluminium products under Section 301 will increase from 0-7.5% to 25% in 2024.
• Semiconductors: the tariff on semiconductors will increase from 25% to 50% by 2025.
• Electric vehicles: the tariff on electric vehicles under Section 301 will increase from 25% to 100% in 2024.
• Batteries, battery components, and critical minerals: the tariff on lithium-ion batteries for electric vehicles will increase from 7.5% to 25% in 2024, while the tariff on lithium-ion batteries for non-electric vehicles will increase from 7.5% to 25% in 2026.
• The tariff on battery parts will increase from 7.5% to 25% in 2024.
• The tariff on natural graphite and permanent magnets will increase from zero to 25% in 2026. The tariff for some other critical minerals will increase from zero to 25% in 2024.
• Marine cranes: the tariff on offshore marine cranes will increase from 0% to 25% in 2024.
• Medical products: the tariff on syringes and needles will increase from 0% to 50% in 2024. For some personal protective equipment (PPE), including some respirators and face masks, the tariffs will increase from 0-7.5% to 25% in 2024. Tariffs on rubber medical and surgical gloves will increase from 7.5% to 25% in 2026.

Note: The U.S. imported goods worth 427 billion USD from China last year, but the tariff increases would affect imports worth about 18 billion USD, according to the White House.