WITA Panel: Higher Section 301 Tariffs on EVs Conflict With Higher Tariffs on Batteries, Minerals

During a Washington International Trade Association webinar on the EV tariff hike, Alliance for Automotive Innovation CEO John Bozzella said that even though the U.S. auto industry imports significant amounts of components from China to support affordability, there are far more U.S.-built cars exported to China than vice versa. "There are a handful of Polestar EVs coming into the U.S., and that’s about it," he said of Chinese EV imports thus far. Higher tariffs on lithium-ion batteries and critical minerals are "much more complicated," he added.

The Alliance for Automotive Innovation represents most automakers that sell in the U.S., as well as some suppliers. Bozzella also said that China has a 15-year head start on electric vehicle batteries and vehicles.

Michael Dunne, an expert in the Chinese automaking sector, agreed. "China has a lock on battery supply chains from mining to processing to cells. We don't have any other way to build out our supply chains in the U.S.," he said, except with Chinese batterymakers' participation.

A company founded in Japan, bought by a Chinese firm, AESC, already has a U.S. battery plant, he noted, and he said that CATL, a Chinese EV battery giant, exports thousands of batteries that are put in U.S.-made Teslas. A technology licensing deal between CATL and Ford has raised political ire in Congress, and Tesla and GM are in talks to license lithium phosphate battery designs, according to The Wall Street Journal. CATL's batteries are in a third of the world's EVs, the newspaper reported.

Dunne said he thinks the U.S. should embrace the inevitable, and take a page from China's playbook -- welcome China's investment in battery plants here, as long as they are joint ventures, where China holds a minority stake.

A countervailing duty investigation on Chinese EV exports to Europe was discussed by many panelists, both as a cautionary tale for the U.S., and with questions on how effective the EU action will be, since its tariffs will be lower than the 102.5% in the U.S.

Hosuk Lee-Makiyama, director of a think tank that studies the EU economy, the European Centre for International Political Economy, said retaliation from China is expected after the CVD rates are announced next month.

"We have already seen signs of retaliation," he said, with China initiating a trade remedy investigation on French cognac.

He said that China is much more willing to punish Europe and Japan, since it sees them as less powerful than the U.S. He said if the EU tries to apply tariffs in the 25% to 40% range -- trying to capture input subsidies on batteries and metals, as well as the cars -- that would make EU tariffs on Chinese EVs in the neighborhood of Chinese 50% tariffs on EVs. He wondered if that could pave the way for a grand bargain between China and the EU, where China would agree to restraints on its exports and to drop its high EV tariff, and the EU would drop the countervailing duties.

But Lee-Makiyama said the anxiety over BYD or other indigenous firms' ability to sell cheap products at decent quality in Europe is overblown. He said that Tesla's Model Y has more market share than all other EV models combined in Europe -- including Tesla's own sedan. He said Tesla chooses to supply Europe from its Chinese factory because "Teslas made in the United States don’t pass the quality assurance in Europe."

Asia Society Policy Institute Managing Director Wendy Cutler said China has said it will take countermeasures against the tariff hikes, and she wondered if that would be a suit at the WTO, export restrictions on critical minerals, or harassing U.S. auto companies operating in China.

Dunne scoffed at that last option. He said that within five years, he expects the Detroit-based automakers to exit China. He said their sales in China are down 50% from seven years ago.

ChinaTalk Podcast Founder Jordan Schneider, the panel moderator, said he would love to be able to buy a car for $15,000 cheaper than new car prices in the U.S., and asked why do domestic auto factories deserve protection from BYD?

Cutler replied that while in the short-term, it might seem attractive to buy cheaper vehicles, that would undermine the competitiveness of U.S. automaking.

"We’ve all seen what dependence on China can lead to," she said, alluding to arbitrary temporary export bans on critical minerals such as gallium. "As China weaponizes trade more, we need to think a lot more" about its integration into our economy, she said.

The automotive industry accounts for 5% of U.S. GDP, Bozzella noted. "I think it’s critical that we have a vibrant, competitive auto industry," Cutler said.