Higher U.S. Tariffs on Chinese Renewable Energy Products

🌱 What tariffs are planned?

On 14 May 2024, the U.S. president, Joe Biden announced that he plans to heavily increase the tariffs on several goods imported from China. According to the White House, the new tariffs will affect imported goods worth an estimated USD 18bn. The plan is to phase in the new tariffs in several steps over the coming three years. Under the current plans, the tariffs on electric vehicles (EVs) will be increased from 25% to 100% in 2024. For solar cells and semiconductors, the tariffs will be raised from 25% to 50% in 2024 and in 2025 respectively. The tariffs on certain steel and aluminum products, as well as on lithium batteries and specific critical minerals, will rise from 0% or 7.5% up to 25% in 2024. Moreover, tariffs on lithium-ion batteries for non-electric vehicles will also be raised as of 2026.

🌱 Why are strong tariffs on EVs planned?

There are not currently many EVs from China in the USA, as imports of EVs produced in China to the U.S. were nearly completely blocked through tariffs that Donald Trump imposed during his presidency. Nonetheless, U.S. officials worry that the U.S. market could be “flooded” with low-priced models in the near future. China is currently estimated to produce 30 million EVs annually and only be able to sell 22 to 23 million domestically. Moreover, the Chinese automaker BYD – for example – launched a new EV model last year that is sold for around USD 12 000 in China. EVs made in the U.S. notably cost three or four times this amount. In light of this, Biden has argued that the new higher tariffs are proportionate.

🌱 Why has Biden announced these measures now?

China and the U.S. have been in a “trade war” of sorts since 2018. The rivalry or tensions initially started when former U.S. president, Donald Trump imposed tariffs on roughly two-thirds of all goods that were previously imported from China to the USA. In 2018, the goods that fell under Trump’s tariffs were estimated to be worth USD 360bn. The new tariffs by Biden are seen as a pre-election effort by him to protect jobs in the U.S. and take a tougher stance towards China.

🌱 What is the larger geopolitical context?

Overall, the Biden administration is worried that “China’s green energy products [could] undermine [the] massive climate-friendly investments made through the Democrats’ Inflation Reduction Act that President Joe Biden signed into law in August 2022”. Similarly, the governments of many European countries share the U.S. fear that “a wave of low-priced Chinese exports [could] overwhelm domestic manufacturing”. The new tariffs however bring a risk of retaliation from China with them, and they could ultimately lead to a “broader trade conflict”.

🌱 What market measures has China taken recently?

China recently appeared to have been taking steps towards “cooling its production of lithium-ion batteries used in EVs, cell phones and other consumer electronics”. The Ministry of Industry and Information Technology in China had notably proposed a draft rule on 8 May 2024 focused on “strengthening the management of the lithium-ion battery industry and promoting the sector’s high-quality growth”. The draft said that “companies should be striving for better technological innovation, higher quality and lower costs, rather than expanding existing capacity”. It also said that “[l]ithium battery plants built in restricted farmlands or industrial zones should be shut down”.