Chinese EV Makers Unfazed by Western Tariffs

• China is the world's largest producer of electric vehicles (EVs), and its EVs are significantly cheaper than those made in the West.
• The West is attempting to protect its auto industry by imposing tariffs on Chinese EVs, but industry experts say these tariffs are unlikely to be effective.
• There are arguments that it might be better for the West to let Chinese EVs enter their markets, as this could help drive down car prices overall and promote EV adoption.

The West is attempting to form a front against the coming onslaught of cheap electric vehicles from China. Just this week the European Union slapped significant tariffs on Chinese EV imports, a month after the Biden administration quadrupled their own tariffs to reach a whopping 100%. But will it be enough to keep Western-made electric cars competitive on the global market?

China is able to produce electric vehicles – and pretty much everything else – much, much more cheaply than its western competitors. Chinese EVs sell for as little as $10,000 apiece, while the average price for an EV in the United States clocks in at more than $53,000 – darn near close to the nation’s average annual salary. Europe is not faring much better, with an average EV cost of  $52,300. Clearly, U.S. and European EV makers are facing a major uphill battle. 

And the problem is only set to intensify, as Chinese automakers prepare to supercharge domestic EV production. Today, 60% of all EV sales in the world are happening in China, and EVs are projected to account for 40% of the nation’s total vehicle exports in 2024, reaching a hefty 2.4 million units. This represents a two-fold increase over last year, which was already a gobsmacking 83% increase over 2022’s numbers. 

China’s hyper-production of electric vehicles is a microcosm of a larger economic trend unfolding out of Beijing. China’s economy is slowing as its own markets become saturated, and it’s turning its attention to exporting absolutely anything it can, with a particularly keen focus on electric cars and photovoltaic solar panels. “With a weakening economy, China naturally looks for exports,” Brad Setser, a scholar at the Council on Foreign Relations, told the Wall Street Journal. “But any meaningful expansion of Chinese exports beyond current levels will crush production elsewhere.”

Indeed, several countries around the world are already looking into whether China is illegally dumping various products onto their markets, such as a range of goods from chemicals to furniture parts in India, wind towers in Vietnam, and the antisubsidy probe that led to this week’s tariffs in the EU. Flooding markets with predatorily priced products is illegal, but not always easy to diagnose. Beijing, for its part, has said that Chinese manufacturers are operating fairly and that their products are dominating the market merely because they are desirable. Moreover, it has denounced the probes into its actions as nakedly protectionist and accused the West’s scrutiny and tariffs of harming global EV supply chains.

Despite this rhetoric, industry experts say that Chinese EV producers will be entirely “unfazed” by the West’s attempts to curb imports. China will continue to churn out new vehicles as fast as it can, counting on demand from fast-growing emerging markets such as Thailand. Indeed, Chinese EVs have already done quite well on European markets, and it remains to be seen whether the European Union’s new 38% tariff is able to make those imports less attractive to consumers. 

There is an argument to be made, however, that it might be better for the West to let Chinese cars hit their markets. As the New York Times reported last month, “a surge of low-cost imported electric vehicles might help drive down car prices overall, potentially helping Mr. Biden in his re-election campaign at a time when inflation remains voters’ top economic concern.” Moreover, low EV prices help the Biden administration’s overall EV adoption goals. 

Indeed, there have been some loud critics of the Biden administration’s steep tariffs on Chinese EVs, which were rolled out last month. Colorado Governor Jared Polis decried the decision as “horrible news for American consumers and a major setback for clean energy,” while Harvard trade expert Robert Lawrence told The Hill, “What Biden has done is to underscore that he prefers trade protectionism to decarbonizing the economy.”

Moreover, the new policies out of the West may just be too little, too late. The United States has been “in the slow lane” for EV adoption and production for years now, and Europe is already so deeply intertwined with Chinese EV manufacturing markets that any additional tariffs may be pyrrhic, as duties on Chinese-made parts will also increase the price of European-made cars.

By Haley Zaremba for Oilprice.com 

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