Does a 100 percent tariff on Chinese EVs make sense?

Print More

Climate change is a significant problem for humankind. Therefore, most Americans now realize that we need to take concrete steps to get away from our dependence on fossil fuels, which are a key contributor to climate change. This explains the increasing demand for electric vehicles that generate no tailpipe emissions. In New York alone, there were nearly 85,000 EV registrations by 2022.

Amitrajeet A. Batabyal

Even though the demand for electric vehicles has grown, one key complaint about EVs in the U.S. is that they are still expensive. One study shows that the top 10 EVs in the U.S. cost an average of almost $54,000 and hence they are affordable to only relatively wealthy Rochesterians and Americans more generally. Looked at another way, 83 percent of EV drivers nationwide had household incomes over $75,000 and 57 percent had incomes over $100,000.

So, if we are to increase the ownership of EVs here and nationwide, the cost of EVs must come down. Since American manufacturers such as Tesla and the legacy automakers like Ford and GM are not producing inexpensive EVs, we need to look elsewhere to get cost-effective EVs. This is where Chinese EV manufacturers, and BYD in particular, enter the picture.

There are many inexpensive Chinese EV models—for example, the BYD Seagull, which retails for about $10,000—that lower-income and middle-income Americans could buy, but these vehicles are not available because of high tariffs.

A tariff is a tax on imports. It helps domestic manufacturers such as Ford and GM—they do not have to produce inexpensive EVs because the cost of Chinese EVs is artificially high with the tariff. The other beneficiary is Uncle Sam, who gets to collect the tariff revenue. But the key point is that a tariff unambiguously hurts American consumers, who must pay a higher price to purchase Chinese EVs. In addition, if the goal of U.S. policymakers is to ensure widespread adoption of EVs, then this objective will not be met. In sum, when we add the benefits and subtract the losses, a tariff rarely makes economic sense.

What then are we to make of President Joe Biden’s recent decision to quadruple the tariff on Chinese EVs to 100 percent? The answer is straightforward. With this action, Biden is certainly not looking to promote consumer welfare in the U.S. What he has in mind are other objectives.

His fundamental objective is to protect the nascent U.S. EV manufacturing industry by ensuring that it doesn’t have to compete with a flood of cheap Chinese EVs. The president must be hoping that Ford, GM, and others will quickly get up to speed and be able to produce inexpensive EVs for the American market. Historically, this kind of objective has been used by the U.S. and other nations to protect domestic industries, but the record on whether an industry protected by tariffs has become stronger is mixed at best.

Another potential objective of the president in levying tariffs is to retaliate against what his administration has called unfair business and trade practices. There is a case to be made about a variety of unsavory Chinese practices such as the forced transfer of technology by U.S. firms, currency manipulation, the subsidization of state-owned enterprises, and even espionage. Even so, tariffs are a blunt instrument with which to tackle these concerns and other ways exist to address them.

Given China’s unenviable status of being the world’s largest emitter of greenhouse gases, it would make a lot of sense for the Biden administration to levy a tariff targeting the greenhouse gas emissions created by China in making imported goods. This would give Americans more generally access to the cheaper Chinese EVs, but they would be less cheap than they presently are because they would be priced correctly to account for the negative impact on the environment that their production causes. In other words, carbon tariffs of this sort, which appear to enjoy bipartisan support, would level the playing field for both domestic manufacturers like Ford and GM and importers.

Biden has correctly identified several problems with the extant bilateral relationship between the U.S. and China and these problems need to be addressed. But he should let American consumers decide whether Chinese EVs are worth purchasing and not make this decision for them by effectively slapping punitive tariffs on them.

Amitrajeet A. Batabyal is a Distinguished Professor, the Arthur J. Gosnell professor of economics, and the interim head of the Sustainability Department, all at RIT, but these views are his own.

The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected]

23 thoughts on “Does a 100 percent tariff on Chinese EVs make sense?

  1. Energy production, utilization, and environmental outcomes are complex, global challenges that haven’t been strategic, results-based, or a high priority by the greatest polluter nations. There are no real enforcement mechanisms to incentivize governments worldwide to act in the best interest of all humans on Earth. Yes, there are somewhat attainable goals and agreements in place. Still, the cause and effect of continuing to push greenhouse gases into the atmosphere and the consequences they cause aren’t as obvious as politicians and citizens need to understand their role in perpetuating climate change. Someone said that not having a diversified pallet of energy sources is a recipe for disaster, or at least monumental cost disruptions, is correct. In New York State, we are fortunate to have significant hydroelectric generation and nuclear power that so far picks up almost half of the generation needed. There is some optimism that when the offshore wind turbines come online, they will at least be able to charge storage systems that can be called upon during peak demand. And someday, our government might be able to convince Canada and their first peoples to allow the construction of more hydroelectric capacity. I don’t know if our elected representatives read the Beacon, but they should. They would get an education from these discussions. Resource extraction is a real environmental challenge. China’s leadership has at least two primary objectives that drive all their decision-making. One, keep as many people employed and fed as possible; two, use the majority of that revenue generated by selling products to the US and Western countries to strengthen their military and gain as many competitive advantages as possible by any means necessary.
    China has no qualms about forcing their people to work in dangerous extraction industries or the environmental impact as long as they can sell what they have. To keep people employed, they overproduce automobiles, both ICE & Electric and dump them on the global market at discounts to keep their factories running. Chinese culture takes the long, strategic view, and by having a party and single leader in place for decades, they do what the Chairman wants. In the US, political chaos is worsening by the minute, with Congress virtually paralyzed by inter-party bickering over inconsequential ego-based battles. China is the 800-pound gorilla and our existential enemy on many fronts; we must do everything possible to minimize dependence on them. Tariffs are one of our many tools, and we should use them. For me, it’s not just about solar cells, electronic components, EVs, greenhouse gas emissions, and extraction pollution; it’s about getting our act together, becoming more self-reliant, and trying to force China to be a better global citizen while actively reducing our carbon footprint.

    • “…Congress virtually paralyzed by inter-party bickering over inconsequential ego-based battles.” And intra-party battles. witness the House Republicans.

  2. Refugee admissions into the US: https://www.statista.com/statistics/200061/number-of-refugees-arriving-in-the-us/
    While the number has increased since 2020, these are refugees LEGALLY admitted to the US and thus a valid and legal part of the workforce. Note the left hand axis which indicated the total number admitted. THESE people can work legally and obtain a green card. So called illegal immigrants cannot. It’s in the 10s of thousands not millions.

    Do you propose to make women have more babies so that we don’t need immigration to grow our population? I’d love to see how you’re going to do that.

    In regards to overall information I’m going to go with factcheck’s numbers: https://www.factcheck.org/2024/02/breaking-down-the-immigration-figures/

    According to FactCheck.org during Biden’s admin 2.5 million immigrants – however they arrived here – were released to US Soil. 2.8 millioin – in the meantime – were expelled or removed. The total? -.3 million. As usual the Republicans can’t figure out how to usee statistics. They, for instance, took one anomalous month of immigration numbers and extrapolated that, rather than using the actual numbers. 78% of attempts to enter the US illegally are thwarted. 3.7 million attempts were sent back home. The majority of people who the DHS encountered were turned away. Overall, CBP refusal of entry has been on par with Trump’sor slightly more in certain years. According to the libertarian David Bier, associate director of immigration studies, the number crossing illegally declined 79 percent under biden. Also Bier wrote in November that his work showed the Biden administration “has removed a higher percentage of arrested border crossers in its first two years than the Trump DHS did over its last two years. Moreover, migrants were more likely to be released after a border arrest under President Trump than under President Biden.”

    Vote Biden. Vote democrat. Or by a hypocrite who ignores the facts in favor of russian propaganda.

    • You stated previously that the UAW attained their recent raise via market forces (labor demand) . Now you say the millions (however dubious their immigration status) that have entered the country are augmenting the labor force (that would seem to indicate downward pressure on wages.) Or is this simply a campaign ad w/ 9 different positions on a issue?

      • Would you concede that immigrants can be added to the work force and that there could still be a labor shortage? Consider that the number of immigrants entering the work force is still less than the number needed. Also, if the skills of the work force in question is not augmented by the skills of the immigrant work force. For instance, if the immigrant workforce consists of health care workers it doesn’t add to the workforce of tool and die makers , machinist, or engineers.

      • Gary- ” could still be a labor shortage” -Actually I wouldn’t concede that given the unemployment rate announced last week went up . Not to mention the asylum mechanism that is being used to admit these people ( that we have no clue who they are, or if they are bringing contagious disease into the US, [read about the new fungus discovered in NYC]) is dubious at best. These people forced their way into our country illegally . Every time I turn on the TV I see these people @ the border interviewed and they say they are from China, Pakistan Africa etc. I hope you are not in cahoots with State Senator Jeremy Cooney who in a D&C Column Sunday proffered: “To remain competitive with other states and best prepare for population migration due to climate change, New York needs to better connect upstate to downstate.” Is this the secret growth plan that Albany has in store? If Sen Cooney is your rep, I’d suggest that you have a talk with him.

  3. I want to add some information that might help the conversation, which is good and thoughtful. The first is about running out of gas and oil, as predicted in the 1970s. Back then, we didn’t use some of the environmentally risky recovery techniques we use today. And the cost of a barrel of oil or ccf of natural gas was far lower (even accounting for inflation) than it is today. No one knows how much oil is left in the Middle East or South Pacific region, and price is everything. The market will respond if consumers are willing to pay $5.00 or so for a gallon of gas. But it’s not the supply or even the cost of vehicles that matters; the emissions caused by burning fossil fuels are causing an existential crisis. Just look at all the intense weather around the world we now endure. Much migration from Central America is due to years of failed crops due to weather extremes, and climate migration is only now beginning. The other side of the equation I don’t think many people are aware of is how we generate electricity, at least in NY State. The majority of electricity in the state is generated by burning natural gas in the NY metropolitan area. They don’t want unsightly wind turbines off the coast of Long Island, and they shuttered two operational nuclear plants that do not emit greenhouse gases in Westchester County because they didn’t like them. China is one of the biggest greenhouse gas emitters on the planet, so if for no other reason, we shouldn’t buy anything from them until they stop burning coal to make their electricity. We need a much better-educated electorate so our leaders are compelled to make wiser strategic decisions regarding energy production and utilization.

    • You are making my point that “peak oil” theory is just a theory. (by that thesis we should of ran out of conventional energy years ago). (I would agree that they just don’t know, and it shouldn’t be used as a argument to advocate anything) There has only been one major (drilling) oil spill since the 70s. Statistically energy harvesting is much safer today. ICE cars are much cleaner and more efficient today, and continue to trend so. You conveniently left out that so called “renewable” energy sources do pollute. If they discovered lithium deposits in your county would you be all for mining them? People seem to be fine with mining materials in the name of clean energy as long as it is digging a crater in somebody else’s country. Wind energy (in addition to undependability) requires rare earn elements that nobody wants to mine in the US. (You are back to the Chinese supply chain again). Solar panels require acids, solvents, photo resists, phosphorus, boron and arsenic etc., which are eventually disposed of in injection wells. NYS is about to ban Natural Gas harvesting using Co2, because it injects into the earth (where is the consistent logic in that ?) Your friends in Albany have been unplugging power plants for years. NYC used to have “Green house gas” free nuclear power plants and they have been shut down. Given our peeps in NYC (when Albany isn’t deciding to shaft them with a commuter tax) seem to like to have the power on (we’ve seen what happens during the blackouts in the 70s), they burn Natural Gas (a bizillion times cleaner than coal or oil buy the way). If we wake up some winter’s day, and there are mass blackouts in NYS because power plants were shut down, buildings , appliances , heating, school busses etc made more dependent on the electrical grid, get ready for a dump truck load of ridicule from me (if I don’t get run over by the remaining population flight)

      • Regarding peak oil, yes, it is a theory as is gravity and evolution. There is a peak oil production, it’s just that no one can say for certainty when that peak is reached. Just as there are unanswered questions about gravity and evolution. As technology and techniques improve the ability to harvest oil the peak oil number changes, yet there is a finite amount of the resource. There were only so many dinosaurs. Disagree?

      • Gary- “There were only so many dinosaurs” If that’s true, then there are only so many meteorites, glaciers , big bangs etc that created Copper, lithium, Gold, Silver , silicon, rare earth deposits etc, which happen to be the critical elements for EVs and so-called renewable energy (and the environmental liability that comes with harvesting them) These are the same EV’s and “renewables” that the Govt is trying to force upon us. When were those peaks be reached, and why not the same concern?

  4. Valuble comments Mr. Drake. Let me add that many have already forgotten the Covid supply problems when everything coming from China stopped, from computer chips that run everything in our infrastructure, to autos, to empty store shelves, and insufficient protective medical/hospital equipment when the dead were piling up. We have an obligation to protect basic standards of living for Americans and relying on our own natural resources and labor, and certainly not on hostile nations.

  5. Sorry Professor, but we have been down this road before. China is officially now a hostile power. Most industrial democracies have tried to work out the problems you cite with China with no success. The majority of countries believe many doing R&D and manufacturing green products and finding new solutions/ inventions will get us to a better environment faster rather than China alone dominating this field. On average our tariffs on Chinese goods are less than half of the tariffs China puts on American goods. There are many examples, but steel and aluminum are a good example. Bush II pushed Permanent Trade Relations with China in 2001 and we saw 50,000 factories close. Several years later Bush put tariffs on Chinese steel and aluminum, as has every President since. China’s heavily subsidized low wage steel is an example of predatory capitalism that seeks monopoly. They produce millions of tons more than worldwide demand to wipe out this core industry needed for infrastructure and national defense in the other steel producing democracies. China is not a free county, but a place where workers/people have no free press, free speech, voting, or due process. We have also banned products made by concentration camp labor in China, the Uyghurs, a persecuted minority. An old friend and also a former professor at RIT, Ron Hira, published a book with his brother Anil called “Outsourcing America”, 2008. He has worked since in a number of research groups and think tanks and been called many times to testify by both political parties in Washington as an expert on outsourcing, trade, and immigration. Reviewing his work will be worth the effort.

  6. Back in the 60’s and 70’s American cars were awful. It was when the Japanese and Europeans exported their higher quality cars to the US that American manufacturers increased quality. Eliminating competition may not be the incentive American car makers need.

  7. The Biden EV tariff may be ill-advised because the cost will ultimately be passed on to American consumers, but that’s just one piece of a much bigger challenge.
    The argument for reducing US greenhouse gases by adopting electric vehicles is good. However, in New York, especially the NY Metropolitan area, a large fraction of electricity is generated using natural gas, a greenhouse gas emitter. Our previous Governor’s ill-advised shuttering of nuclear power plants in Westchester County forced a greater reliance on fossil fuels. The expectation that we could import more green electricity from Canada has not reached fruition. The irony is that the NY Metro area, with its large number of commuters, is most likely the best market for EVs, and it is also likely that incomes are higher in those communities to acquire EVs. However, even though inflation is modest and the economy is doing well, consumer confidence and the high cost of loans have slowed the acquisition of all new vehicles, especially EVs.
    A much more comprehensive, big-picture national strategy is urgently needed to address the complex issues of the environment and economy. However, I find myself questioning our elected officials’ intellectual bandwidth and temperament to take a long view of all the moving parts involved. This lack of confidence only underscores the urgency of the situation.
    China’s actions significantly threaten our military, economic, and geopolitical interests. As one of the world’s largest greenhouse gas emitters, it continues to import large amounts of coal from Australia and build coal-fired power plants at an alarming rate. This not only exacerbates global greenhouse gas emissions but also perpetuates our addiction to consuming cheap, inferior products from Asia. The perception of high domestic product costs only adds to the problem.
    The trade deficit between the US and Communist China is greatly imbalanced in China’s favor. This imbalance allows China to exponentially increase the expansion of its military, subsidize its industries, and expand its global influence. Of great strategic importance is China’s aggression in the South China Sea and its desire to retake Taiwan. Make no mistake: China is the enemy, and all Americans need to be weaned from importing everything from that adversary.
    China is an enemy that plays the long game and simultaneously plays all the pieces on the board. One example is that China is working with Mexico to ship electric vehicles there to take advantage of US policies that favor imports from our neighbors to get around various import restrictions. President Biden and our dysfunctional Congress should do everything possible to aggressively support subsidizing our domestic automakers and push greater undersea exploration and extraction of rare minerals to lessen our dependence on China and India. Our citizens must become more aware and involved in urging our lawmakers to wake up, stop partisan bickering over non-life-threatening conflicts, and focus on making us more self-reliant and innovative, solving myriad challenges simultaneously.

  8. You guys should get your problems strait here. First we have a ICE fleet that gets the best milage with the least emissions in the history of ICEs. The US and North America have demonstrated energy independence , with the future opportunity for even less emissions by using domestically produced natural gas. (another economic opportunity that NYS has driven away) . The UAW constituency has just extorted a ~20% wage increase (with pension guarantees and other overhead) out of the big 3 (we’ve forgotten that similar antics drove the Big 3 to near bankruptcy req a govt bail-out circa 2008). So DC has mandated all of this overhead on the Big 3 and we are scratching our heads on why the Chinese have lower costs with their auto manufacturing? With States like NY mandating elimination of ICE vehicles in the future, while removing power generation, forcing poor School districts to EV Bus mandates, we better hope there are cheap cars available, or all of those poor folks you see @ Walmart will be hitch-hiking to the store. Given EVs require more copper, rare-earths and lithium etc than conventional vehicles, there may be a advantage to letting the Chinese use their resources to build these cars (for which demand in the US in dubious at best) while polluting their own country instead of ours.

    • I just discovered a scientific fact….polluting is a planet problem, not a regional problem. This nation is finished, done. It was great ride and destroyed from within. I don’t know who deserves all the credit. That said the politicians, the unions, the media and their collective greed that has us where we are today. Not a shot needs to be fired, simply capitulate to the better nation, China.

      • “It was great ride and destroyed from within.” Aristotle argued democracy was a poor choice for government as it would naturally corrode from within. It’s why the framers chose a republican form of government which we have lost sight of. I wonder what he would have thought of socialism or communism.

    • Interesting terminology you are using here. You blame unions here and communism abroad for our issues in a capitalist society. Capitalism is based on supply and demand. Currently, due to immigration laws in particular, the supply of labor here is short, and demand is high. During that type of period the producers (Ie those who are in demand) can ask for higher wages and get them – and oh by the way unemployment is at a steady all time low. That’s LITERALLY capitalism at work. The fact that the labor union collectively bargained for that raise is the offset to corporate greed that led to the depression in the 20s – you reference 2008, I’m going to reference 1930. We allow and encourage labor unions so that Americans can negotiate to better their personal lives, rather than only be slaves to corporate greed. You wouldn’t have a 5 day work week, or an 8 hour day or overtime, without the types of negotiations labor has provided over the years. If your utopia is working 6 or 7 days a week 10 hours a day as they frequently do in China, I guess I don’t want to live in your utopia. DC didn’t mandate anything – the labor unions exercised the power of the market to bring the wages up to current standards and keep up with inflation – because they could, not because anyone in the government told them to.

      See above comments for why the Chinese system of capitalism is different from our system of capitalism and why we need to develop competitive strategies to combat that. We don’t have to give up. Many of the chip manufacturers are moving their factories out of china with a lot of success, due to everything from security concerns, to government mandates (created by the Biden administration and NEVER created by Trump) and tariff concerns. So far though the price of phones and computers has not gone through the roof due to these moves.

      In terms of Natural gas, just so you know – like all fossil fuels – the supply is limited. Let’s revisit capitalism – if the supply of something goes down – where does the price go? Up. If you have a virtually unlimited energy source (gravity, the sun, geothermal, tidal, etc) the price will remain stable as capacity grows. That is what fossil fuel providers fear. They WANT the price to go up so they can make more on the same margin. If everyone produces their own energy, and it remains inexpensive they don’t make money. Consider the motivations of those whose message you are repeating.

      • I don’t think I “blamed” anyone. Since the current Administration has let in millions of illegal immigrants, that would seem to refute your labor supply assertion. The manufacture of EVs (that our government is pressuring the big 3 to build and all of us to drive) by definition requires less labor. So if this central planning dream of a EV world comes to fruition, this would further eliminate the demand for labor.(and your labor cost assertion) The Union “collectively bargained” with the Big 3 by shutting down production of their big ICE vehicles (the ones that people actually want and are profitable) , so not wanting to rock the PC boat, the Bog 3 caved (and we will see it in further inflated car prices) . Btw we have a 5 day work week thanks to Henry Ford in 1926 (a decade before the UAW infiltrated the auto industry in the late 30s) . DC WAS involved in the recent UAW strike activity because President Biden made a appearance (first time for a sitting President) on the picket line. If you are referring to the “Chips Act”, I never saw the hearings or the debate where we decided the US would enact a industrial policy and decide what gets built (What’s next a Stalinist style NEP)? It takes years to build $B semiconductor factories (which are polluting btw) , we moved many of these facilities off shore in the first place because US costs and regulations made it uncompetitive. I’m not endorsing the CCP, only pointing out if cars are priced out of reach for the middle class, their cars will be the only ones we can afford. Am I reading in your post that Trump tariffs are bad, but Biden tariffs are good? I have been told since the 70s that we are running out of oil and gas, that’s been proven false. If that eventually ever does become reality, the free market (if we still have one) will provide a solution.

    • Facts matter. The Big Three raised their prices an average of over $8,000 per vehicle under the old contract with no raises to the UAW. Labor costs of a vehicle are about 5% of the cost, down from 20% in the 1970’s. Last year and again this year the Big Three spent more on stock buybacks than the cost of a new UAW contract per year. This was illegal until President Reagan. It gives a windfall to shareholders, many that are auto executives. The millions each made are taxed below what the middle class pays due to the carried interest and other loopholes. Those that believe a Communist dictatorship practicing state sponsored predatory capitalism, that does not believe in competition in the marketplace, are welcome to emigrate. When I was in state college, I believe we often heard, ” Love it or Leave it.” In spite of our current politics, facts still matter.

      • Agreed, I’m not sure trading our problems with capitalism for communism is a deal we want to make.

      • I don’t think I stated anything as “fact” that wasn’t factual. Any raise I ever got during my career was for meeting objectives and improving my skill set , it wasn’t based on the price of cars. I hope the Big 3 are financially healthy (as a taxpayer I can’t afford another bail out) . As a stock holder with a 401K plan, I’m a fan of stock buy backs (its a good sign when the insiders of a company buy their own stock, it gives me confidence) , it also usually has a favorable impact on my 401K balance. (Which we will all need if we the consumer are to cover the new overhead the UAW just laid on us)

  9. I know you are an economist and I am not – however, I think that what Biden is shooting for here is an even playing field. Let’s take solar for example. All the nascent solar startups in the US (Solyndra) failed for the most part because China’s government – through both direct subsidies, price fixing and lax regulations – caused Chinese produced solar to be so inexpensive -they never had a chance.

    The Chinese, despite being “communist” are savvy business competitors. Just like an internet startup they realize that to dominate the market they need to produce vast quantities, as cheaply as possible, and leverage the trillions of dollars the government has to capture that market early in development – because competing on an even playing field is much more difficult than grabbing everything up front and then just dominating it. They can recover those sunk costs later when there is no longer any significant competition.

    As such, if the US wants to be able to compete globally – we either need to match their investments in startups – something Americans seem loathe to do, since we excoriate investments in failed startups by the government (Witness Solyndra again) despite the fact that we know already only 20 percent of vetted startup investments pan out and we don’t provide them the support they need to compete globally – or wee need to impose tariffs to compensate for the Chinese government largess that Chinese startups enjoy.

    You point out China’s terrible environmental record, something not changing any time soon, but also fail to highlight their terrible worker protection laws. Both combined make it impossible to compete without an equalizing factor – and relaxing either is not an acceptable American strategy.

Leave a Reply

Your email address will not be published. Required fields are marked *