History says tariffs rarely work, but U.S. President Biden’s 100% tariffs on Chinese EVs could defy the trend, researcher says

tardigrada@beehaw.org to Technology@beehaw.org – 91 points –
History says tariffs rarely work, but Biden’s 100% tariffs on Chinese EVs could defy the trend
theconversation.com

By Tinglong Dai, Bernard T. Ferrari Professor of Business, Johns Hopkins University

In June 2019, then-presidential candidate Joe Biden tweeted: “Trump doesn’t get the basics. He thinks his tariffs are being paid by China. Any freshman econ student could tell you that the American people are paying his tariffs.”

Fast-forward five years to May 2024, and President Biden has announced a hike in tariffs on a variety of Chinese imports, including a 100% tariff that would significantly increase the price of Chinese-made electric vehicles.

For a nation committed to reducing greenhouse gas emissions, efforts by the U.S. to block low-cost EVs might seem counterproductive. At a price of around US$12,000, Chinese automaker BYD’s Seagull electric car could quickly expand EV sales if it landed at that price in the U.S., where the cheapest new electric cars cost nearly three times more.

As an expert in global supply chains, however, I believe the Biden tariffs can succeed in giving the U.S. EV industry room to grow. Without the tariffs, U.S. auto sales risk being undercut by Chinese companies, which have much lower production costs due to their manufacturing methods, looser environmental and safety standards, cheaper labor and more generous government EV subsidies.

Tariffs have a troubled history

The U.S. has a long history of tariffs that have failed to achieve their economic goals.

The Smoot-Hawley Tariff Act of 1930 was meant to protect American jobs by raising tariffs on imported goods. But it backfired by prompting other countries to raise their tariffs, which led to a drop in international trade and deepened the Great Depression.

Biden speaks at a podium with people standing behind him holding United Steelworkers signs.

President George W. Bush’s 2002 steel tariffs also led to higher steel prices, which hurt industries that use steel and cost American manufacturing an estimated 200,000 jobs. The tariffs were lifted after the World Trade Organization ruled against them.

The Obama administration’s tariffs on Chinese-made solar panels in 2012 blocked direct imports but failed to foster a domestic solar panel industry. Today, the U.S. relies heavily on imports from companies operating in Southeast Asia – primarily Cambodia, Malaysia, Thailand and Vietnam. Many of those companies are linked to China.

Why EV tariffs are different this time

Biden’s EV tariffs, however, might defy historical precedent and succeed where the solar tariff failed, for a few key reasons:

1. Timing matters.

When Obama imposed tariffs on solar panels in 2012, nearly half of U.S. installations were already using Chinese-manufactured panels. In contrast, Chinese-made EVs, including models sold in the U.S. by Volvo and Polestar, have negligible U.S. market shares.

Because the U.S. market is not dependent on Chinese-made EVs, the tariffs can be implemented without significant disruption or price increases, giving the domestic industry time to grow and compete more effectively.

By imposing tariffs early, the Biden administration hopes to prevent the U.S. market from becoming saturated with low-price Chinese EVs, which could undercut domestic manufacturers and stifle innovation.

2. Global supply chains are not the same today.

The COVID-19 pandemic exposed vulnerabilities in global supply chains, such as the risk of disruptions in the availability of critical components and delays in production and shipping. These issues prompted many countries, including the U.S., to reevaluate their dependence on foreign manufacturers for critical goods and to shift toward reshoring – bringing manufacturing back to the U.S. – and strengthening domestic supply chains.

The war in Ukraine has further intensified the separation between U.S.-led and China-led economic orders, a phenomenon I call the “Supply Chain Iron Curtain.”

In a recent McKinsey survey, 67% of executives cited geopolitical risk as the greatest threat to global growth. In this context, EVs and their components, particularly batteries, are key products identified in Biden’s supply chain reviews as critical to the nation’s supply chain resilience.

Ensuring a stable and secure supply of these components through domestic manufacturing can mitigate the risks associated with global supply chain disruptions and geopolitical tensions.

3. National security concerns are higher.

Unlike solar panels, EVs have direct national security implications. The Biden administration considers Chinese-made EVs a potential cybersecurity threat due to the possibility of embedded software that could be used for surveillance or cyberattacks.

U.S. Commerce Secretary Gina Raimondo has discussed espionage risks involving the potential for foreign-made EVs to collect sensitive data and transmit it outside the U.S. Officials have raised concerns about the resilience of an EV supply chain dependent on other countries in the event of a geopolitical conflict.

BYD targets EV sales in Mexico

While Biden’s EV tariffs might succeed in keeping Chinese competition out for a while, Chinese EV manufacturers could try to circumvent the tariffs by moving production to countries such as Mexico.

This scenario is similar to past tactics used by Chinese solar panel manufacturers, which relocated production to other Asian countries to avoid U.S. tariffs.

Chinese automaker BYD, the world leader in EV sales, is already exploring establishing a factory in Mexico to produce its new electric truck. Nearly 10% of cars sold in Mexico in 2023 were produced by Chinese automakers.

Given the changing geopolitical reality, Biden’s 100% EV tariffs are likely the beginning of a broader strategy rather than an isolated measure. U.S. Trade Representative Katherine Tai hinted at this during a recent press conference, stating that addressing vehicles made in Mexico would require “a separate pathway” and to “stay tuned” for future actions.

Is Europe next?

For now, given the near absence of Chinese-made EVs in the U.S. auto market, Biden’s EV tariffs are unlikely to have a noticeable short-term impact in the U.S. They could, however, affect decisions in Europe.

The European Union saw Chinese EV imports more than double over a seven-month period in 2023, undercutting European vehicles by offering lower prices. Manufacturers are concerned. When finance ministers from the Group of Seven advanced democracies meet in late May, tariffs will be on the agenda.

Biden’s move might encourage similar protective actions elsewhere, reinforcing the global shift toward securing supply chains and promoting domestic manufacturing.

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2019 Biden was right, tariffs hurt everybody. Behind closed doors Biden knows that, but also knows what further helping the Chinese could mean down the road.

What could it mean? What's the "nightmare scenario" here? The US has had a significant trade deficit with China for decades.

They get strong enough quick enough that they become geopolitically unstoppable. I don't trust those guys to rule the world, or even have it sort of within reach.

But you trust "Weapons of Mass Destruction" and "Tuskegee Syphilis Experiments" and "COINTELPRO" and "PRISM" US government?

I'm with Douglas Adams, if you want power you should explicitly be denied power. The only ones who deserve any power are those who don't want it because they understand the implications and care deeply about making mistakes that could hurt people.

People who desire power only ever want to Rule and Control.

There isn't a single world government that isn't currently filled with idiots who are only in it for power and power alone.

Bring back fucking sortition, we've shown we're not capable of handling a democratic system without it.

Actually, I agree. The US has had the opportunity to go rogue for decades, though, and so far has opted to ignore the outside world instead (with occasional, unpopular forays to the desert or jungle to feel like a big man). That's probably down to their political system, and the fact voters don't want to be bothered with empire building.

If it was China vs. the autocratic Trump empire, I'd seriously be considering China.

Thanks for the well considered reply. I agree that the US's political system is part of what has held it back from going rogue, but the problems I referenced were all growing cancers that may very well lead to an autocratic Trump empire.

Just the Trump cases alone are absolutely destroying any credibility the legal system had left, and when people in a nation start to lose trust in their "justice" system... well, things tend to get pretty bad when people stop trusting authority and turn to Mob Justice.

Even without Trump as President, that's where we're headed because he has firmly shafted regular people's trust that the legal system is in any way fair or just. We all know for fucksure now that the only thing that matters in the US is having money and connections.

When Trump was elected, it was because he was seen as the outsider to shake things up. People are still waiting on things to be shaken up in favor of regular ass people instead of corporations. That includes conservatives even if they're too stupid to understand that's what they are actually mad about. Don't expect Trump's wiping his ass with the legal system to not have long-term impacts.

That's not going to end well, Trump as President or not.

While I agree with your sentiment regarding people losing faith in their government, we have been on this road before a few times (antibellum era, William Jennings Bryan era, Joe McCarthy era). After a time of painful soul searching, we've always come back from these low periods. I have no reason to believe we won't overcome it again.

Really, most of my hope for the mid-future is tied up in Europe. They have far-right movements there too, but it's totally different in a lot of important ways, and possibly less catastrophic.

Failing that, I dunno. The world is a very scary place indeed.

Control it how? The US is as close as anyone has come to being a global hegemon and even then they can only do so much to nuclear states.

Yeah, the "sort of within reach" thing is more plausible. China in the role of 1970's America still scares me. Hell, 1970's America scares me, and they were too busy boomering to commit all that much to world domination.

Yeah but I'm still not clear on what the fear is exactly.

Like how do you envision it changing your life having China "in charge" vs the US?

I expect they'd treat us like we (the British empire) treated lesser foreign powers. They kind of already do, on the rare occasion they pay attention to little Canada. If they managed to gain direct power here, they'd treat us like the British treated their colonial subjects, or like the Chinese have already treated their westernmost minorities, and you can ask the Natives what that's like.

Unlike America, they're autocratic and openly, officially ethnocentric. That's bad news for anyone not an elite Chinese person, and in the long term it's bad news for even them, because purges.

they’d treat us like we (the British empire) treated lesser foreign powers

How's that? Disadvantageous trade agreements? You already have those.

What would "direct power" look like? China invades Canada, a country defended by US nukes, with the PLA? There's a reason Iran and North Korea are still around despite open animus from the US.

My point is largely that these nebulous fears of "Chinese hegemony" are just that--nebulous. Asking people to drill down into what they're really afraid of either reveals the status quo or impossible scenarios.

How’s that? Disadvantageous trade agreements? You already have those.

You know the Brits did worse that that.

Hell, our trade agreements with the US are fine anyway.

China invades Canada, a country defended by US nukes, with the PLA? There’s a reason Iran and North Korea are still around despite open animus from the US.

That assumes the US still has our back, and Iran doesn't even have nukes, they're just more trouble than they're worth. In the long run, nukes only guarantee countries that actually have them, and that's not us.

For what it's worth, if China was a democracy, I'd be fine with them as the new hyperpower. But they're not, so they are ideological enemies to me.

Did worse than that to, like, China in the 19th c. But I thought you were talking about like France and Spain.

I admit I'm fuzzy on how it all went down, exactly, but I was indeed thinking of the opium stuff when I wrote that. And all the shifty dealings with natives here, when we bothered to treat them as actual people worthy of relations.

The Opium Wars involved armed conflict on Chinese soil. That's the sort of thing nukes deter.

Yes, if that specific bit happened to a nuclear nation, it would be the end of the world as we know it.

Do you think a world dominated by autocracies again would be fine, basically?

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Further helping the Chinese? Come TF on and get real. When did America ever help China? In fact when did America help anyone? America got greedy and has sucked all of the possible profit they could from American industry, when they decided to outsource it.

It started off as raw materials and then became wholesale manufacturing and China quickly became very good at making all the things you felt you were too good to make and then became very good at the things you needed them to make and now they're just all round very good at doing all the things that you stopped doing so a handful of executives could have a larger bonus.

Help the Chinese? You're drowning in your own shit and demanding China save you like you're doing them a favour. America, the UK, let's just say, the West in general needs China more than China needs us and its because of greedy CEOs and politicians who only see things in the short term. The idea that you're helping China is your propaganda, it's not reality.

And yet China still can't make very good chips or CNC machines. That's because fast development works by first picking up outsource work that's simple, and then gradually moving to more complex types of value-added production. Without Western outsourcing, China would be economically like North Korea.

I have a feeling you're on of those guys that thinks NK is Wakanda, though, so maybe that's not as useful an analogy as I'd hope.

Without Western outsourcing, China would be economically like North Korea.

Would/Could/Should

I have a feeling you're on of those guys that thinks NK is Wakanda, though, so maybe that's not as useful an analogy as I'd hope.

Ad hominem attacks, really?! Have a good day.

Am I wrong? Are you not part of the (so-called) "anti-imperialist" crowd? Do you not think NK is secretly a great place to live?

The notion that the West needs China more than vice versa is laughable. China is literally the biggest importer of Western goods and resources in the world including absolute dependence on American soybeans just to feed its population.

Without Nixon opening up trade relations with China when he did, China is probably still a largely agrarian nation today. They certainly wouldn't have industrialized as quickly as they did. The US did that, for better or worse.

For decades China had a "3rd world country discount" on international transport, meaning:

  • send from China = almost free
  • sent to China = normal cost + extra fee

Not just the US, but every "1st world country" has been helping China, in the hopes of integrating it into a capitalist system and disrupting whatever is going on in there.

...and it would have worked, if it wasn't for China not just doubling down, but going bananas on authoritarian interventionism.

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