Biden’s tariffs on Chinese electric vehicles make sense, but only for a while

Beware of oversimplified narratives about the Biden administration’s recent plans to increase the tariff from 25% to 100% on Chinese electric vehicles (EVs), doubling their base cost. For example, President Joe Biden accused Beijing of “cheating” when he announced the measures, but China’s subsidies for its domestic electric vehicle industry are arguably just a different approach to an industrial policy strategy that the United States also is applying. The idea that EV tariffs show that President Biden doesn’t care about the climate is also wrong. Rather, he worries that domestic climate progress will stall if it contributes to the collapse of the American auto industry.

Some have even argued that the tariffs are symbolic, since Chinese electric vehicle manufacturers do not export to the United States. That’s not the point. The measures are more proactive than reactive. The Biden administration aims to create a defensible moat so that American automakers’ efforts to make competitive electric vehicles are not wiped out by Chinese imports.

The dangers are real. The rise of Chinese manufacturing over the past 25 years has already had enormous economic and political consequences on American manufacturing cities. A flood of Chinese exports of cheap electric vehicles is a predictable risk given that China’s manufacturing capacity far exceeds domestic demand.

A confusing and uncomfortable reality

The UK once had a thriving automotive sector that failed to innovate and compete, leading to takeovers by companies based in China, India and Germany and massive job losses. The American auto industry faced a similar near-death experience when low-cost, high-quality Japanese vehicles entered the American market in the 1970s and 1980s. The threat was averted because Japan, an ally, voluntarily accepted numerical quotas, forcing its exports to luxury brands and moving part of its production to the United States. That resolution not only prevented a sector collapse but also created jobs in the United States and bought time for domestic automakers. to invest and innovate. Trade restrictions can allow innovation and competition to flourish, if carefully implemented.

The confusing and uncomfortable reality is that the United States must balance three competing goals: achieving rapid decarbonization, preventing the rapid loss of high-quality automotive jobs across the country, and allowing American consumers to access low-cost, high-quality electric vehicles. quality. Higher tariffs on Chinese EVs can be part of a sound strategy that advances these three goals, but only if they are temporary and dependent on socially beneficial actions by domestic producers.

Open-ended tariffs send the wrong signal. The American auto industry could become comfortable with the gift of protectionism and stagnate if it does not fear for its survival. This stagnation, combined with high tariffs, could mean that Americans cannot access the best electric vehicles. The domestic electric vehicle industry would gradually crumble, and trade wars in green products could limit both economic growth and climate progress. If American automakers (and, more importantly, their workers) receive protection, it should be for a prespecified period during which companies submit and execute rigorous plans to become competitive.

Imperfect solutions

Tariffs alone will not provide the impetus for North American electric vehicle makers to become competitive with their Chinese counterparts and shift away from serving the higher-margin SUV, truck and luxury vehicle market. Broader policies, including subsidies, regulations and investments in charging networks, should complement time-limited tariffs. The Biden administration should explore fostering long-term partnerships with world-leading companies in electric vehicle technology, even if they are Chinese. The United States should capitalize on Chinese companies’ desire to invest and share technology if it helps American automakers catch up, as was the case in Japan decades ago.

To its credit, the Biden administration is already taking many of these measures. But it can be more aggressive when it comes to implementing charges and taking a tougher stance on the domestic industry, starting by declaring a tariff phase-out schedule and putting conditions on automakers.

Each auto company should announce a detailed plan that is consistent with the country’s net-zero emissions goals, even if the exact timing is uncertain and depends on demand and regional charging availability. Companies should also identify potential areas for intra-industry cooperation or public-private partnerships, particularly in high-performance household batteries with reduced needs for critical materials. They should also make commitments to support the workers and communities that depend on the industry, including by funding recycling.

American automakers have broadly stated that they will accelerate production of low-cost electric vehicles, but progress has been slow. This current round of tariffs could further slow progress if not combined with strong incentives for domestic industry to catch up with their Chinese counterparts.

American policymakers have only imperfect solutions to support consumers, workers, and climate goals. The best option is strong, temporary and conditional support for the domestic electric vehicle industry.

Chris Bataille, Ph.D., is a research associate at the Center for Global Energy Policy at Columbia University. Noah Kaufman, Ph.D., is a senior fellow at the Center for Global Energy Policy at Columbia University. Gautam Jain, Ph.D., is a senior fellow at the Center for Global Energy Policy at Columbia University. Sagatom Saha is a research associate at the Center for Global Energy Policy at Columbia University.

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