The Chinese electric vehicle (EV) industry has been able to produce and sell EVs at significantly lower prices compared to other countries, thanks to heavy direct subsidies from the Chinese government. These subsidies, combined with tax benefits for car buyers, have given Chinese EV makers a competitive edge. This has raised concerns among automakers, unions, and policymakers in the US and Europe, who argue that China’s unfair subsidies undermine foreign competitors. As a result, President Joe Biden is expected to announce new 100 percent tariffs targeting specific Chinese industries, including electric vehicles.
Chinese EV makers, such as BYD, have pursued various strategies to make their cars more affordable. These include using cost-cutting measures like using one windshield wiper instead of two. Furthermore, Chinese automakers have embraced advanced technology, such as large screens across dashboards and online connected services. This level of technological integration has not yet been matched by other brands. However, it has also faced scrutiny due to concerns over data privacy and national security, as the Chinese government has restricted certain activities of foreign EV companies, including Tesla.
The affordability of Chinese EVs has allowed Chinese automakers to expand their market share in foreign markets, particularly in Europe. In 2020, one in five EVs sold in Europe were made in China, and this number is expected to rise to one in four in 2021. The European Union has initiated an investigation into anticompetitive behavior by Chinese automakers, and stronger tariffs on Chinese EVs are anticipated in the coming weeks.
In the United States, Chinese car imports already face a 25 percent import tariff on top of the 2.5 percent tariff that applies to all car imports. However, Chinese EV brands have not yet entered the US market. If President Biden enacts the proposed 102.5 percent tariffs, it would significantly impact brands like Polestar and Lotus, both of which currently manufacture their US-market EVs in China. Industry leaders, such as Tesla CEO Elon Musk and Ford CEO Jim Farley, have expressed concern that without trade barriers, Chinese EVs could dominate the global market and harm other car companies.
The United Auto Workers union also advocates for protecting the US auto industry and jobs. The union argues that the transition to cleaner technologies should not lead to offshoring and low wages. They emphasize the need for tariff protections in the nascent EV industry to avoid an influx of imports that could pose a threat to American workers.
US politicians have already taken steps to counter the threat of China’s dominance in the EV sector. The Inflation Reduction Act of 2022, for example, revised the IRS clean vehicle tax credit to only apply to vehicles assembled in North America. Additionally, a growing number of lawmakers, from both sides of the aisle, have called for a ban on Chinese EV imports to protect domestic industries. The US Trade Representative has also pressured the Mexican government to refrain from offering incentives to Chinese EV makers under the United States-Mexico-Canada Free Trade Agreement.
In conclusion, the Chinese government’s heavy subsidies and support for its EV industry have enabled Chinese automakers to produce and sell EVs at lower prices compared to their foreign competitors. However, concerns over fair competition and national security have prompted efforts by the US, Europe, and other countries to counter the threat of China’s dominance in the global EV market. Tariffs, investigations into anticompetitive behavior, and changes in regulations are being pursued to protect domestic industries and jobs. The future of the global EV market will likely be shaped by these ongoing efforts to level the playing field.
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