Executive Summary

• Increases to import tariffs on foreign vehicles have been hinted at by President Biden and suggested by the House Select Committee on the Chinese Communist Party (CCP).
• While automobile tariffs are often implemented to stimulate sales of domestic vehicles, it is unclear if American manufacturers can meet the increasing demand for electric vehicles (EVs); high tariffs also dramatically increase costs for American firms and consumers.
• Current 25% import tariffs increase the average price of Chinese EVs by $8,250 for American consumers, and consumers would face an even greater tax if the United States decides to raise tariffs even higher on Chinese EVs.

Introduction

In a speech addressing the United Auto Workers (UAW) on November 9, 2023, President Biden accused China of being “determined to dominate the electric vehicle market by using unfair trade practices,” and promising to “not let them.” Neither the specifics of China’s “unfair trade practices” nor a strategy to combat them were explained. Biden appears to be referencing the CCP’s EV subsidies as unfair practices, while suggesting countering low Chinese EV prices with increased or maintained Section 301 import tariffs. This idea was also recently proposed by the House Select Committee on the CCP in a letter to the Office of the United States Trade Representative (USTR). By promising to stop China from controlling the EV market in a speech to auto workers, it seems Biden is determined to protect the U.S. automobile industry no matter the cost, even if protectionist policies result in higher prices for all Americans.

Demand has rapidly increased for EVs in the United States, but U.S. car manufacturers have struggled to keep up with EV demand. In recent years, the U.S. EV industry has only produced a fraction of the cars of Chinese EV manufacturers, and Chinese EVs are being sold for less than half the price of their American counterparts. By maintaining current 25% import tariffs on Chinese vehicles, American consumers and firms are forced to be more reliant on American automobiles, and therefore subjected to supply shortages, limited choices, and higher prices, all of which would only be amplified by tariff increases.

Supply Shortages

By warning the USTR of China’s plan to “flood the United State with EVs,” the House Select Committee on the CCP seems to believe excess demand for EVs in the United States may be met with Chinese supply. Surveys taken by Consumer Reports found a 350% increase in consumer demand for EVs from 2020 to 2022. U.S. car manufacturers such as Ford and General Motors have mentioned supply chain issues as problems with EV production. These issues are exacerbated by the domestic content rules of the Biden Administration’s Inflation Reduction Act (IRA) of 2022. The IRA’s domestic content rules provide tax credits to U.S. producers using domestic materials, discouraging the use of foreign materials in EV production. Battery supply shortages, as well as shortages of raw materials are issues facing EV manufacturers around the world.

According to research from the MIT Technology Review, Chinese annual production and sales of EVs almost doubled in 2022, when China produced over 7 million EVs and sold over 6.8 million of them, over half of global EV sales. Furthermore, EV exports from China more than doubled in 2022, increasing 120% from 310,000 to 679,000 exported cars. For comparison, the United States sold about 800,000 EVs in 2022, less than 12% of the Chinese volume. If U.S. manufacturers are currently only capable of producing a fraction of the EVs the Chinese can, it may be important for the United States to import Chinese EVs to meet excess demand for the vehicles.

Since 2009, the CCP has partly funded the Chinese EV market through government subsidies and tax breaks estimated to be worth $29 billion, so the House Select Committee on the CCP’s claim that Chinese EV manufacturers have been “propped up” by their government does appear true. However, Biden referring to Chinese government subsidies in the EV market as “unfair trade practices” does not appear a fair claim, considering extensive government subsidies and tax credits were granted to the American EV industry in the Biden Administration’s IRA.

High Prices

The lower costs of Chinese EVs compared to their American counterparts could expand the EV market to provide significantly more options, and specifically more affordable options for American consumers. Increased competition from Chinese EV manufacturers could encourage American companies to innovate or lower prices to compete. Forbes research estimates the average retail price of an electric car to be $72,000 in the United States and only $33,000 in China. Therefore, with no import tariffs, Americans could benefit from access to Chinese EVs for less than half the price of American ones. The current Section 301 tariffs on Chinese imports impose a 25% tax on vehicles from China, which, through simple calculations, may raise that $33,000 average price enjoyed by Chinese consumers to $41,250 for American consumers, an $8,250 per-vehicle tax on the American people. If the U.S. were to raise tariffs on Chinese vehicles even further, as suggested by the House Select Committee on the CCP and insinuated by Biden, EV prices could rise even higher.

Carbon Emissions

Furthermore, increased availability of EVs could combat climate change. Research by the Transportation Energy Institute found that over a 200,000-mile lifetime, battery electric vehicles omit 41% fewer carbon emissions than internal combustion engine vehicles, even considering the battery manufacturing process. NASA research concludes increased levels of carbon dioxide cause climate change by trapping heat in the Earth’s atmosphere. Therefore, if EVs omit significantly less carbon into the Earth’s atmosphere, less carbon emissions from EVs could result in less climate change. A November 14, 2023 White House briefing praised President Biden for having “delivered on the most ambitious climate agenda in history…” and for “taking bold action to reduce climate pollution across every sector of the economy.” However, Biden’s reluctance to reduce tariffs on Chinese EVs suggest following the populist “buy American” motto may be more important to Biden than tackling climate change.

Conclusion

Domestic car manufacturers in the United States may not be able to meet massive increases in U.S. demand for EVs, signaling a supply shortage that could be remedied by EV imports from China and elsewhere. Current Section 301 import tariffs significantly burden U.S. firms and consumers, who are taxed 25% on Chinese EVs. Additional tariff increases suggested by President Biden and the House Select Committee on the CCP would limit choices and raise prices for American firms and consumers.