The use of tariffs is a hotly debated topic amongst economists following the rise of the global economy. Nevertheless, tariffs and duties have been applied to Chinese electric vehicles, EVs, after a rise in supply, threatening a major sector of China’s economy.

Tariffs are a long used tool by Governments to regulate imports and control the impacts of international trade on their economies. Tariffs are simply a fee that is added to an imported product (or service) that makes that import more expensive for consumers in that country to purchase, often referred to as a tax on imports or customs duty.

There are various methods of applying this tax from specific amounts to percentage of value (ad valorem) or a mixture of both. The reasons for imposing tariffs range from protecting a new or developing domestic industry, protecting consumers from a particular product deemed dangerous or undesirable, as a source of revenue for a country, or to protect domestic producers from cheaper imports that would erode their market share, which is the case for Chinese EVs in the West. (https://corporatefinanceinstitute.com/resources/economics/tariff/).

Announced on June 12, Europe have increased tariffs from 17.4% to 38.1% on imported EVs from China, after Biden increased tariffs earlier in May. There is ongoing rivalry between China and the US and Europe, which has been present in other aspects of trade, yet now it is impacting a major industry in China’s economy. The US’ justification has been accusing China of unfair trade practices, leading them to impose a 100% tax on Chinese EVs in efforts of protectionism for the American motor industry.

However, Australia is welcoming the competition in an effort to spur demand for electric vehicles, with Australia’s Federal Chamber of Automotive Industries (FCAI) commenting that increased competition and the availability of Chinese-produced vehicles had “enhanced consumer choice.” (https://www.abc.net.au/news/2024-05-31/chinese-cars-third-most-popular-in-australia/103909144)

An estimated $231 billion over 15 years has been granted in subsidies to EV brands from the Chinese government, including technology and the cars themselves. This not only sparked a boom in that industry in China, but also allowed China to develop its control over exports, by oversupplying the international market. This influx of Chinese cars has lowered their prices compared to other suppliers such that the Chinese EV manufacturer BYD outsold Tesla in the final quarter of 2023. (https://www.bbc.com/news/business-67860232)

China has responded to these increases in tariffs on their EVs with a hope for communication, wanting to reduce trade frictions, especially in the context of the US-China trade war.

Summary:

Following the past decade of a consistent rise in supply of Chinese Electric Vehicles, the West have chosen to retaliate with tariffs and duties on them, with the US imposing an 100% tax in May. In efforts of protectionism and maintaining fair practices, Europe has recently increased their own tariff, creating friction amongst international trade with one of China’s major sectors.