Clark Packard

Today, the Biden administration announced it is quadrupling tariffs on imported electric vehicles (EVs) from China, while also imposing new tariffs on steel and aluminum, certain critical minerals, solar cells, batteries and battery components, ship‐​to‐​shore cranes, medical products, and semiconductors. The tariffs will shield from Chinese competition many of the very US industries the Biden administration showered with protectionist subsidies as part of its industrial policies enacted in the Inflation Reduction Act and CHIPS and Science Act. And they raise several problems.

A (Political) Solution in Search of a Problem

First, the United States already levies a 27.5 percent tariff on Chinese‐​made EVs—a 25 percent tariff already imposed under Section 301 plus a 2.5 percent most‐​favored nation tariff—which explains why Chinese producers’ share of the US EV market is currently around 1 percent. New Section 301 tariffs of 100 percent will likely ensure that Chinese‐​made EVs are effectively banned from the United States, but they were never really here in the first place.

Thus, the new EV tariffs are similar to the steel tariffs also announced today by the Biden administration, which I covered with my Cato colleagues Scott Lincicome and Alfredo Carrillo Obregon last month. In the case of steel, the US has essentially eliminated Chinese products from the market using antidumping and countervailing duties. And like the new steel tariffs—and President Biden’s opposition to the purchase of US Steel by Japanese‐​based Nippon Steel on bogus “national security” grounds—the new EV tariffs are driven mainly by domestic political calculations and the 2024 presidential campaign, not economics or geopolitics.

Citing anonymous administration officials, Politico confirmed as much last week: with the Trump campaign promising a 60 percent tariff on all imports from China, the Biden administration apparently feels compelled to respond with its own tariffs, in the hope of appealing to unionized auto workers in the Midwest. (Trump, meanwhile, responded to reports about Biden’s 100 percent EV tariff last Saturday with a promise to levy a 200 percent tariff on Chinese EVs made in Mexico.)

It’s truly a race to the protectionist bottom.

Bad Policy

Second, Biden’s EV tariff move is terrible policy.

Most obviously, the EV tariffs will harm American consumers, similar to how US auto protectionism did in the 1980s. Back then, high oil prices had driven American consumers to purchase smaller, more fuel‐​efficient cars (a segment largely dominated by Japanese producers). The Reagan administration responded to the competitive threat to US “Big Three” automakers by pressuring Japan to impose limits on automobile exports.

As Lincicome explained last year, research shows that those restrictions raised the price of Japanese automobiles in the United States by an average of about $3,700 (in 2022 dollars). But by restricting lower‐​priced suppliers’ access to the US market, the import restrictions also allowed domestic automakers to raise prices by an estimated $2,138–$2850 per car (2022 dollars). And European automakers raised their US prices even more. Overall, the restrictions on Japanese cars cost American consumers more than $16 billion (2022 dollars) per year throughout much of the 1980s.

Chinese EV imports today raise some different issues than did Japanese cars in the 1980s, but the consumer harms of US protectionism will likely be similar. Today, by many accounts, China is producing some pretty good quality EVs at prices well below those for most EVs in the US market (even with generous IRA subsidies). Effectively banning Chinese EVs will thus give remaining automakers in the United States room to keep EV prices higher than they’d otherwise be, to American consumers’ detriment. And, unlike the case of Japan in the 1980s, it’s all but certain that Chinese automakers will be barred from investing in the United States to jump this new tariff wall.

The tariffs will thus eliminate potentially important competitive pressures on US automakers, which—other than Tesla—are largely laggards in the EV market. (Bloomberg just reported, for example, that Ford lost more than $100,000 per EV during the first quarter of 2024 as demand and prices fell.) That’s also bad for American consumers—and the long‐​term health of the US industry.

Furthermore, by raising the price—and thereby stunting the deployment—of EVs, the tariffs undermine the Biden administration’s stated goals of reducing carbon emissions (as many US environmentalists and EV fans have recently lamented). In this regard, the EV tariffs (and also‐​announced solar tariffs) would continue the administration’s habit of choosing politics and protectionism over their environmental agenda.

Consumer subsidies in the IRA, for example, are limited to purchases of a small handful of North American‐​made EVs, and the Biden administration has already maintained many of the (ineffective) solar tariffs it inherited from the Trump administration and, in addition to increasing tariffs on Chinese solar cells, is actively considering new tariffs on imported solar products from Vietnam, Cambodia, Thailand and Malaysia that are allegedly subsidized and/​or dumped into the US market, as my Cato colleague Jim Bacchus recently explained.

Wrong Legal Tool

Third, Biden’s tariff announcement is legally dubious (to put it nicely). Section 301 of the Trade of 1974 allows the US Trade Representative to investigate and attempt to remedy “unfair” actions and policies taken by foreign governments that violate US trade agreements or unreasonably hurt and/​or burden US commerce. The statute is designed to create leverage to pry open foreign markets by forcing targeted governments to remove the offending actions or policies. Section 301 was widely used in the 1980s but fell out of favor once the World Trade Organization (WTO)—with its binding dispute settlement system—replaced the General Agreement on Tariffs and Trade in 1995. That is until the Trump administration dusted off the statute.

Six years ago, the Trump administration utilized Section 301 to levy its tariffs on imports from China. The crux of the case was that Beijing’s intellectual property abuses harm US commercial interests to the tune of about $50 billion per year, and that tariffs of an equivalent amount were needed to induce changes in Chinese IP policy. Now, as part of the two‐​year, statutorily‐​mandated review of those tariffs—during which many American firms thoroughly documented the harms of the Trump administration’s tariffs—the Biden administration will use the same Section 301 authority and findings to levy the new EV and other tariffs. But Chinese subsidies for EVs—and supporting “strategic” domestic sectors—have nothing to do with Beijing’s IP abuses as documented in the original Section 301 Report.

As already noted, the main motivation for new EV and other tariffs is politics, but even more legitimate US concerns about Chinese EVs have nothing to do with IP. Instead, they mostly center around cybersecurity and shielding American’s privacy from Beijing. As the New York Times recently reported, “Mr. Biden has previously raised concerns about Chinese electric vehicles, saying that internet‐​connected Chinese cars and trucks posed risks to national security because their operating systems could send sensitive information to Beijing.”

If policymakers in Washington want to argue that imported Chinese‐​made EVs pose a security risk to the United States, they should utilize Section 232 of the Trade Expansion Act of 1962 (which the Trump administration used to impose tariffs on steel and aluminum from virtually every country in the world, including allies like Canada), not Section 301. Section 232 requires the Commerce Department, in consultation with the Defense Department, to investigate whether imports of a particular product pose a national security risk to the United States and if so, grants the executive branch virtual carte blanche authority to restrict the importation of that product.

On the other hand, if the administration wants to argue that tariffs are needed to counteract Chinese subsidies, we have a law for that too: the US countervailing duty law, which lets the US government—consistent with WTO rules—apply remedial duties on subsidized imports (from China or any other country) that injure or threaten to injure American manufacturers of the same product. The European Union is currently considering whether to apply countervailing duties on subsidized EV imports from China.

Taking this sort of blasé approach—flippantly ignoring the procedural and substantive difference between Section 301 and Section 232—for political expedience further undermines the rule of law concerning US trade policy. Such abuse not only dims the substantial benefits of international trade and investment over the long run but also makes it easier for a new Trump administration to further abuse US trade law and impose their tariffs.

Conclusion

New tariffs on imported EVs and other products from China are driven mostly by domestic political calculations in the run‐​up to the 2024 presidential election. At the same time, the tariffs are bad news for American consumers and broader climate goals, and they’re a blatant misuse of the Section 301 statute. The US desperately needs a return to sound, rules‐​based trade policy.