“We will never let China control the market for this type of vehicle.” With those words, the President of the US, Joe Biden, announced that he would raise current import rates for Chinese EVs from 25% to 100%. Fearing an engulfment of cheaper Chinese electric cars, this doubles their retail price.
Citing the impossibility of fair competition under current conditions, Joe Biden announced a significant tariff hike for made-in-China automakers that plan to sell in the US. By quadrupling the levies, it has become practically impossible for them to find American customers.
It illustrates the cost-effectiveness of Chinese brands, or “cheating” as it has been called, as Biden raised the tariffs from 7% to 25% earlier, which seems insufficient to fight off the dragon from the East. The decision follows a four-year investigation into China’s industrial subsidy scheme.
Breathing space
The Biden administration’s measures don’t counteract a current problem but prepare for a threat that might become reality tomorrow. Apart from exceptions like Polestar and Lotus, no Chinese manufacturers are currently selling on American shores, and brands like BYD, Nio, or MG aren’t available.
However, as the average retail price of Chinese EVs is roughly 110% cheaper than that of US-made vehicles, the President is cautious and wants to give some breathing space to domestic manufacturers struggling with the energy transition. Tariffs have also been raised for batteries, minerals, and new energy materials.
According to Beijing, the Chinese Ministry of Commerce responded swiftly and called for an immediate retraction of the new tariffs, which it argues contravene World Trade Organization (WTO) rules—a stance repeatedly ignored by the US. China has already appealed to the WTO over Biden’s incentive scheme, the Inflation Reduction Act (IRA), calling it discriminatory for Chinese brands.
Massive overcapacity
China faces a massive overcapacity of 20 million cars by 2025 and is looking for export markets to ease off some of the steam building up domestically. This is evident at the port of Zeebrugge in Belgium, the world’s largest car handler, already overloaded with Chinese cars awaiting customers.
Biden’s decision on levies also resonates with the political front. During remarks on the sidelines of his trial in New York, former President Donald Trump has jested about his proposals to impose significant tariffs on China. He proposes a duty of 200% on Chinese cars made in Mexico, a trade ally of the US not eligible for these import duties.
The only option left for Chinese car brands is to manufacture locally. Because of its official support and lower wages, negotiations between some Chinese brands and Mexico are ongoing.
Others, like Polestar, already build cars in the US. The 3 will shortly roll off the assembly line in Ridgeville, South Carolina, next to its technical sibling, the Volvo EX90. If the brand keeps selling the 2, built in China, the lower-positioned sedan will be much more expensive than the luxurious SUV 3.
What will Europe do?
Reactions to the measures in Europe aren’t favorable. Germany and Sweden expressed apprehensions during a joint press conference in Stockholm, where German Chancellor Olaf Scholz is visiting. Together with Swedish Prime Minister Ulf Kristersson, he criticized the move as detrimental to global trade. The latter cautioned against the pitfalls of a full-blown trade war.
Having conducted a comparable investigation into unfair Chinese government aid, the European Union is likewise readdressing its current import levies of 10%—Western carmakers are imposed 15% in China.
While the investigation won’t be finalized before the winter season, imported cars are already registered today for possible retrograde extra duties. A decision on an additional percentual rise for import tariffs could come as soon as July.
A plea for lowering the tariffs
During Chinese leader Xi Jinping’s recent visit to France, von der Leyen asserted the EU’s readiness to take decisive action to safeguard its economy. She warned against unfair trading practices. In contrast, Beijing accuses the EU of protectionism and denies overcapacity issues.
Due to their essential presence in the Chinese market, German automotive captains criticize the EU investigation. BMW CEO Oliver Zipse said it could be counterproductive for the EU. His colleague at Mercedes, Ola Källenius, surprisingly called for lowering the tariffs on Chinese imports to boost competitiveness. Mercedes’ largest shareholder is Hangzhou-based Geely, also owner of Volvo. For premium German automakers, China is the largest market by volume. They are wary of retaliation.
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