Thoughts on Biden administration and Chinese tariffs

We asked Max Slee, PM of Energy Transition at Ecofin, to share his thoughts following the recent Biden administration announcement on increasing Chinese tariffs. Please see below:

 Following this week's announcement from the Biden administration on increased tariffs on Chinese-made EVs and other products, such as solar panels and semiconductors, what are your thoughts on the impact this will have on the EV and solar panel industry?

The near-term impact on Chinese EV imports is minimal given the Chinese car exporters were already excluded from the US market due to existing 25% import tariffs on all Chinese autos. Shifting to 100% import tariff in EVs reinforces this protectionist stance and could be viewed as incrementally positive for US market share of non-Chinese EV brands in the mid-term. However, it still might be possible for Chinese manufacturers to build capacity in Mexico or Canada and export to the US in the future. Near term, there is almost no impact to Chinese automotive OEMs as they were already excluded.

Similarly, only a very small percentage of Chinese EV batteries were being exported to the US, so the implementation of tariffs is not very material to Chinese EV battery manufacturers. Import tariffs on Chinese EV batteries have been increased to 25% from 7.5%. The Chinese have a much larger market share of the US ESS (Energy Storage System) battery market. The US policymakers have recognised this, and the 25% tariffs only start from 2026 for Chinese ESS batteries. This leaves a window of time for manufacturing capacity to be built outside of China, although there will still likely be strong reliance on Chinese processed battery materials. In the meantime, we may see a pull forward of ESS shipments to the US from China.

In 2023, overall Chinese exports of EV and ESS batteries to the US was likely only c. 5% of total Chinese battery supply in volume terms, albeit slightly higher in value terms.

Regarding the solar tariffs which were increased from 25% to 50%, currently around 75% of solar panel imports to the US come from Southeast Asia, and almost none comes directly from China. So, this tariff is largely symbolic. The AC/CVD tariff decision on Southeast Asian solar panel imports (from many Chinese brands using Southeast Asia as a manufacturing tariff loophole) which is due in the next months could have a much bigger impact on solar panel supply to the US potentially resulting on further solar panel price inflation and equipment shortages.

Is this yet another political point-scoring exercise in the run-up to the elections?

The tariffs targeted only 4% of China’s exports to the US. These tariffs have likely been sculpted to maximise political impact without leading to any severe supply shortages or inflationary impulses to US manufacturers and consumers. Having said that, the magnitude of Chinese response is less predictable, and China may want to react in order to discourage other countries from implementing further similar protectionist tariffs. For example, the Chinese could decide to restrict supply of battery materials which would have a major restrictive impact on global battery supply chains.

Are we likely to see these measures implemented in key European markets?

The EU has been debating implantation of tariffs on Chinese EV imports. A provisional import tariff decision is likely to be made by the 4th of July.