US representatives call for tariff bump on Chinese EV imports
Increasing worry in Washington about loopholes in US tariff barriers
The US House of Representatives Select Committee on the Chinese Communist Party (CCP) has called for tariffs to be raised on Chinese EV exports amid anxiety about a potential flood of Chinese EVs into the US automobile market.
In a letter to Katherine Tai, who holds the cabinet position of Trade Representative and is responsible for developing and promoting American trade policy, the committee outlined its ongoing concerns about the state-sponsored competitive advantage enjoyed by Chinese automakers.
Chinese automotive market leader BYD, for example, has received RMB2.7bn, or around $370mn, in Chinese government cash in the first nine months of the year.
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But it is not just CCP subsidies and below-market debt that has led to Chinese firms’ lead in the EV race. It is also because “they invested a decade ahead of most other countries”, according to Tom Moerenhout of Columbia University’s School of International and Public Affairs, who believes that in addition to subsidies, early mover advantage has given Chinese firms superior technology and supply chains.
Indeed, analysts at investment bank UBS recently calculated that “Chinese OEMs [will] double their global market share by 2030” and will do so with profit margins “similar to profits made on mass-market combustion engine cars globally”. According to consultancy firm Alix Partners, China replaced Japan as the world’s leading automotive exporter in the first quarter of 2023.
This has many in Washington worried, even though Chinese exports to the US are currently minimal due to 25pc duties. “This barrier will make it hard for Chinese companies to export to the United States but not impossible,” says Ilaria Mazzocco of thinktank the Center for Strategic and International Studies.
“The US has thus far been spared by a surge of PRC vehicles because PRC vehicles are ineligible for tax credits under the Inflation Reduction Act and because of the additional 25pc tariffs on PRC-imported vehicles,” the select committee acknowledges. But it continues that “it is critical that tariffs on PRC automobiles not only be maintained but also increased to stem the expected surge in PRC imports”.
And while the committee “applauds” the Biden administration for maintaining 25pc tariffs, it says that current import duties are not sufficient to prevent the US market being flooded and undercut by Chinese EVs. “If PRC automakers are able to withstand sustained losses with the support of the PRC government, it is only a matter of time before PRC manufacturers will be able to absorb the additional 25pc tariff on PRC vehicles to access the US market,” the committee writes.
Back door routes
And there is increasing concern about the limits of tariffs, amid worries that Chinese firms can find ‘back-door’ routes into the US market. “Tariffs on vehicles from the PRC alone will not solve the problem, as the PRC seeks to circumvent tariffs through a variety of means, including transshipment and overseas production in third countries,” the committee warns.
Chinese EV maker Leapmotor, for example, recently sold an approximately 20pc stake in its business to Franco-Italian OEM Stellantis, a move which gives Stellantis the right to produce and sell Leapmotor vehicles outside of China. This in itself would not qualify Stellantis-imported EVs for US tax credits, but the deal signals a change of approach from Western OEMs towards partnerships with Chinese manufacturers.
The agreement is the reverse of many previous deals between Western and Chinese automakers, such as German giant VW’s agreement with China’s Xpeng to sell VW-branded vehicles in China. It is not about leveraging Western OEMs’ global brand strength in China, rather than about Chinese technology leveraging this brand strength globally. Arguably, Sweden’s Volvo Cars, controlled by China’s Geely, and the UK heritage marque MG, owned by China’s Saic, are existing examples, but these were Chinese swoops on stricken assets, not a cooperation entered into willingly by a leading Western OEM.
Down Mexico way
The committee also warns about “the coming wave of PRC vehicles that will be exported from our other trading partners, such as Mexico, as PRC automakers look to strategically establish operations outside of the PRC to take advantage of preferential access to the US market through our free trade agreements”.
BYD and Saic have already established Mexican sales arms for their imports, leading some to speculate about planned manufacturing facilities in the country. And Sino-Swedish manufacturer Polestar, also largely owned by Geely, is planning an additional plant that may well be in Mexico — to go alongside one opening in the US itself next year.
An increasing Sino-phobic tone of conversation around the EV industry is not just an example of partisan jingoism or indeed of auto manufacturing special interest lobbying. Rather, the call for higher tariffs and investigative action into Chinese trade practices reflects a pervasive attitude across the aisle in Washington.
“Washington shares the view that China has had protectionist policies that harm US interests,” says Moerenhout. And James Ley, senior vice-president, energy metals at consultancy Rystad Energy, admits being “taken aback” on a recent US trip by the level of bipartisan support he found for shutting China out of the US EV industry entirely.