New Delhi: The US has imposed a four-fold import duty hike on Chinese-made electric vehicles to 100 percent in a bid to protect American manufacturers from “unfair trade practices” by China.
The move comes close on the heels of a recent policy change by India, wherein it reduced import duty on EVs to 15 percent for all EV makers, including those from China, albeit with a caveat that they would have to set up a local manufacturing unit within three years in order to avail the lower tariffs.
According to the announcement by US President Joe Biden, the tariff rate on Chinese electric vehicles will increase from 25 percent to 100 percent in 2024. The announcement is part of a broader move by the US government to impose steeper tariffs on $18 billion worth of Chinese imports, including steel and aluminium (from 0-7.5 percent to 25 percent), semiconductors (from 25 percent to 50 percent) and solar cells (from 25 percent to 50 percent).
The tariff on lithium-ion EV batteries, lithium-ion non-EV batteries as well as battery parts has been increased from 7.5 percent to 25 percent.
“China’s unfair trade practices concerning technology transfer, intellectual property, and innovation are threatening American businesses and workers. China is also flooding global markets with artificially low-priced exports,” an official statement from the White House said Tuesday.
“In response to China’s unfair trade practices and to counteract the resulting harms, today, President Biden is directing his Trade Representative to increase tariffs under Section 301 of the Trade Act on $18 billion of imports from China to protect American workers and businesses.”
On the increase in EV tariff, the statement said with extensive subsidies and non-market practices leading to substantial risks of overcapacity, China’s exports of EVs grew by 70 percent from 2022 to 2023 — jeopardising productive investments elsewhere.
“A 100 percent tariff rate on EVs will protect American manufacturers from China’s unfair trade practices. This action advances President Biden’s vision of ensuring the future of the auto industry will be made in America by American workers,” it said.
It further added that the administration is incentivising the development of a robust EV market through business tax credits for manufacturing of batteries and production of critical minerals, consumer tax credits for EV adoption, smart standards, federal investments in EV charging infrastructure, and grants to supply EV and battery manufacturing. “The increase in the tariff rate on electric vehicles will protect these investments and jobs from unfairly priced Chinese imports.”
Same end goal, different approaches
The end goal for the tariff change announced by the US as well as policy change announced by India in March is to build a local manufacturing ecosystem for EVs. However, the two countries are taking very different approaches to achieve this goal.
While the US is seeking to protect its domestic manufacturers by imposing high import tariffs, India is attracting foreign investors and promising lower import tariffs but only on the condition that they invest here within a set timeframe.
The companies will need to make a minimum investment of Rs 4,145 crore ($500 million) with a three-year timeline for commercial production of e-vehicle in India, and reach 50 percent domestic value addition within five years at the maximum.
While the policy was expected to benefit American automakers such as Tesla, Rivian, and Lucid, the Department for Promotion of Industry and Internal Trade (DPIIT) Secretary Rajesh Kumar Singh last month clarified that there will be no restrictions on the import of electric vehicles from any country, including China, under the new EV policy.
Yet, China will still benefit
In a note, Moody’s Ratings said that the increase in tariff by the US will have minimal effect on sales of Chinese automakers given the industry’s limited EV export exposure to the US and also because vast majority of China’s auto sales are to the domestic market.
Domestic auto sales reached 25.2 million units in 2023, or 84 percent of total auto sales, while exports accounted for the remaining 16 percent, according to Chinese Association of Automobile Manufacturers.
“Additionally, most vehicles exported from China are internal combustion engine vehicles. Internal combustion engine vehicle exports reached 3.7 million units in 2023, or 75 percent of total exports, while new energy vehicle (NEV) exports accounted for the remaining 25 percent,” it pointed out, adding that the US is currently not a key destination for China’s auto exports and doesn’t even feature among the top 10 destination.
“Nonetheless, regulatory and policy risks related to China auto exports remain because potential trade barriers may rise in other export destinations as the country’s export volume grows,” it said.
The policy think tank Global Trade Research Initiative (GTRI) has noted that India’s decision to allow Chinese car makers and cutting import tariffs on EVs will benefit Chinese manufacturers directly or indirectly as China is the dominant supplier of EV batteries.
“Supply chain dependence on China will sharply increase even when non-Chinese companies (Tesla, Vinfast) set shop in India,” it said in an April 2024 report.
In the next few years, every third EV and many passenger and commercial vehicles on India roads could be made by Chinese firms in India alone or through joint ventures with Indian firms, the report noted.
For instance, the joint venture between China’s SAIC Motor, which owns the MG brand, and India’s JSW Group aims to sell over 1 million EVs by 2030.
In March, SAIC Motor divested a 51 percent stake in its subsidiary MG Motor India to Indian investors led by the JSW Group. Other investors in the JV company — JSW MG Motor India Private Ltd — include Indian financial institutions with 8 percent stake, the employees of MG India with 5 percent and MG India’s dealers with a 3 percent stake.
“The large-scale entry and market dominance of Chinese automakers into India will impact the domestic auto/EV manufacturers, firms working in EV value chain space, battery development,” the report said.
Meanwhile, there were media reports attributing to the GTRI that the US-China tariff war might result in India becoming a dumping ground of Chinese products such as EVs and batteries.
According to a report by Counterpoint Research, released Monday, China remained the global leader in EV passenger vehicle sales in the January-March 2024 period, followed by the US and Europe. China’s EV sales grew 28 percent year-over-year (YoY), while the US recorded a modest 2 percent YoY growth.
Despite a 9 percent YoY decline, Tesla regained the top position in battery electric vehicle (BEV) sales in Q1 2024, commanding a 19 percent market share, followed by China’s BYD Group (15 percent) and Germany’s Volkswagen Group (6 percent).
“Notably, among the top three OEMs (original equipment manufacturers), only BYD achieved growth (13 percent YoY), while both Tesla and Volkswagen experienced declines of 9 percent and 4 percent YoY, respectively,” the report said.
(Edited by Tony Rai)
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