US reported tariffs of Chinese EV to backfire: experts
‘overcapacity’ narrative faces doubts
Published: May 12, 2024 10:04 PM Updated: May 12, 2024 10:55 PM
Electric vehicles are being charged. Illustration: VCG

Electric vehicles are being charged. Illustration: VCG

The US is reportedly planning to levy tariffs on imports from China's emerging industries, including a potential 100 percent tariff on Chinese electric vehicles (EV). The move, which comes as the US continues to hype the so-called Chinese "overcapacity" in green products, is facing more challenges and questions. 

Experts argue that the US' protective measures reveal its defensive mindset and its struggles in competing with China's new energy industries. This trade protectionism will backfire, they said. 

The Biden administration plans to impose major new tariffs on EVs, semiconductors, solar equipment and medical supplies imported from China. Tariffs on EVs, in particular, could quadruple from the existing 25 percent to 100 percent, the Associated Press reported.

The tariffs, expected to be announced on Tuesday, come as the US has been hyping China's "overcapacity" in emerging industries to protect its own industry while intensifying the subsidies.

Trade protectionism to backfire

Chinese experts said the reported tariffs on Chinese EVs as well as the hype about China's "overcapacity" show stepped-up trade protectionism in the US and reveal its uneasiness about China's growing advantage in the global EV market.

Yet, the reported additional tariffs on Chinese cars will have limited impact, as it is more a political move to serve election purposes, they said. 

Tian Yun, a veteran economist based in Beijing told the Global Times on Sunday that the move from the US shows that even with a 25 percent tariff, US-made EVs do not have an advantage in terms of cost-effectiveness compared to imported Chinese EVs.

"It shows that the US manufacturing industry is in a defensive position and can only maintain domestic industry's development through high tariffs, as China's manufacturing competitiveness far exceeds that of the US," Tian said.

However, experts believe that the overall impact on Chinese EVs would be limited due to the low export volume [to the US].

Zhang Xiang, Director of the Digital Automotive International Cooperation Research Center of the World Digital Economy Forum, told the Global Times on Sunday that Chinese passenger car exports to the US are mainly US brands but manufactured in China. There are few Chinese brands that export EVs to the US market. 

"The increase in tariffs will see US companies and consumers bearing more losses," Zhang said. 

The idea of levying high tariffs on Chinese products is more politically motivated to win votes for the elections, Gao Lingyun, an expert at the Chinese Academy of Social Sciences, told the Global Times on Sunday.

The US' actions obviously violate WTO rules and there is the risk that tariffs could lead to broader trade disputes between the two countries, Gao warned.

In response to the reports of the potential new tariffs, Chinese Foreign Ministry spokesperson Lin Jian told a press briefing on Friday that the actions are "doubling the US' fault," noting that the Section 301 tariffs imposed by the former US administration on China have severely disrupted normal trade and economic exchanges between China and the US.

Lin urged the US to follow WTO rules, lift all additional tariffs on China and not to impose new ones. China will take all necessary measures to defend its rights and interests.

Doubts on 'overcapacity' hype

At the same time, the US' hype on China's overcapacity in certain industries are facing more challenges. 

Kai Ryssdal, host of the public radio show Marketplace, recently interviewed US Treasury Secretary Janet Yellen and suggested that the US may have been raising China's overcapacity because the US is being outcompeted by the Chinese in those fields, according to the transcript posted by Marketplace on its website on Thursday.

Ryssdal also suggested that while the US claims China is subsidizing its emerging industries, the US is subsidizing more and is "pouring billions" into these areas.

In August 2022, President Biden signed into law the Inflation Reduction Act, which includes about $369 billion incentives to promote the production and use of EVs. 

The US Treasury Department earlier this month announced final regulations for the credits under the 2022 Inflation Reduction Act. Americans buying EVs will no longer be able to claim federal tax credits of up to $7,500 if their cars contain Chinese materials, The Washington Post reported.

China's Ministry of Commerce (MOFCOM) said in December that China's EVs and auto parts are welcome in the global market, and excluding Chinese firms from these tax credits is a typical non-market-oriented policy.

The discriminatory subsidy policy violates the basic principles of the WTO, seriously disrupts international trade and investment, and undermines the stability of global industry and supply chains, MOFCOM said.

Experts said that it is crucial for the US government to rectify its discriminatory industrial policies to safeguard the stability of the global EV industrial chain.

"The US' decision to raise tariffs and refuse to work with China in new-energy sector is not only uneconomical but also unsustainable, ultimately damaging their own industry competitiveness," Gao said.