News analysis

US tariffs on Chinese EVs have more bark than bite

Higher tariffs will be applied to US$18 billion (S$24.2 billion) worth of Chinese imports, Mr Joe Biden told union and company representatives at an event on May 14. PHOTO: EPA-EFE

SINGAPORE – While United States President Joe Biden has announced steep hikes in tariffs on a range of Chinese goods including electric vehicles (EVs), analysts say the actual impact on China is likely to be limited.

Higher tariffs of between 25 per cent and 100 per cent will be applied to US$18 billion (S$24.2 billion) worth of Chinese imports, Mr Biden told union and company representatives at an event on May 14.

The affected Chinese goods include steel and aluminium, semiconductors, EVs, critical minerals, solar cells and cranes, said the White House.

Analysts say the tariff hikes are a move by Mr Biden to woo voters ahead of the upcoming US presidential elections in November, and are more symbolic than impactful.

In a note, investment bank Nomura said that targeted products account for a mere 4.2 per cent of China’s total exports to the US and less than 1 per cent of China’s global exports.

The value of Chinese imports targeted this time also pales in comparison with the tariffs imposed on US$300 billion worth of Chinese imports from 2018 to 2020, ordered by then US President Donald Trump.

What is also worth noting is that the new tariffs are due to be phased in, with some taking effect only in 2026.

Grabbing much attention this time round is the steep hike in US tariffs on EVs from China, which will jump from 25 per cent to 100 per cent.

“This is mostly symbolic,” said Nanyang Technological University economist Tan Kong Yam, who noted that Chinese EVs have already been “locked out of the US market”.

Only 1 per cent of EVs sold in the US are from China, he said.

Of the 1.2 million EVs that China sold globally in 2023, just 12,000 were sold in the US. In comparison, Chinese carmaker BYD sold 14,939 EVs in Brazil in just the first three months of 2024, Professor Tan told The Straits Times.

The introduction of the new tariffs reflects how “Biden needs to look tough on China and be seen to protect US workers”, he added.

What could hurt China, however, is if the European Union follows in the footsteps of the US in imposing import duties on Chinese EVs.

Europe accounted for about 40 per cent of China’s EV exports in 2023, Nomura Bank noted.

The EU is carrying out a probe into whether manufacturers of the cheap Chinese EVs flooding its markets have benefited from state subsidies.

China has said that its EVs have competed fairly and that they sell well in Europe because Chinese firms are simply good at producing cheaper but better-quality cars.

Beijing, which has criticised the latest US move as politicising economic issues and warned of countermeasures, now has a few options. It can follow up with tit-for-tat tariffs, make it harder for US goods to enter its borders by tightening customs regulations, or levy sanctions on the politicians who lobbied for the tariffs on China. 

However, judging by the low-key reaction in China’s media, Beijing is unlikely to go all out to counter the latest US tariff hikes.

Mr Joe Mazur, senior analyst at Beijing-based consultancy Trivium China, said Beijing’s response will likely be restrained.

“For years, China’s standard response to US tariffs has been to rail against American protectionism without responding in kind,” he told ST.

“My bet would be that, this time around, China’s Commerce Ministry will either decline to retaliate or do so in a mostly symbolic way, since Beijing still doesn’t want to ratchet up trade tension with Washington any more than necessary.”

Concurring, Prof Tan said China will try to avoid actions that might make it the centre of the US presidential election campaign.

“If China retaliates, it will be putting tariffs on US agriculture, like soya beans, corn and pork.”

Beijing would undoubtedly be keen to avoid escalating trade tensions.

As Nomura Bank noted, China’s export growth “has held up well (in 2024) thus far, owing to the global tech upswing, resilient external demand and competitive prices”.

“Rising trade tensions may impede the export sector and encourage more supply chain relocation away from China in the longer run,” it added.

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