After years of big EV investment by American carmakers, a drop in demand has them scrambling to cut back on production—and a potential tidal wave of competition from bottom-dollar Chinese imports is threatening to decimate their business.
But Missouri Sen. Josh Hawley has an outlandish proposal to stop Chinese manufacturers from capturing American market share: a 40-fold tariff increase that would more than double the base price of Chinese-made EVs sold in the U.S.
The Protecting American Autoworkers From China Act, which Hawley introduced Wednesday, would raise base tariffs for imported Chinese vehicles from 2.5% to 100%. The Biden administration already approved a policy taxing certain Chinese EV imports by up to 27.5%, so Hawley’s proposal would result in a peak tariff rate of a whopping 125% of a vehicle’s value—by far the highest duty for any common foreign product entering the country.
“If Joe Biden wants to support American autoworkers, he should start by protecting them from the existential threat posed by China,” Hawley said in a press release announcing the bill. “We must put American workers first, bring jobs back to American soil, and reject radical climate mandates that make China rich and America poor.”
Even assuming the full cost of Hawley’s tariff was passed on to consumers, Chinese EVs could still be competitive in the American market because their base prices are so low. With big help from the Chinese government, Chinese automakers such as BYD are able to market new EVs at astonishingly low prices, largely because they’ve been able to fully integrate battery manufacturing into their supply chain.
BYD started selling an $11,000 model called the Seagull in China last year. Even under Hawley’s tariff schedule, that model would cost less than $25,000 for American buyers—still well below the average price of almost all American-made EVs.
The average sale price of an EV in the U.S. Was $51,000 as of last December, and there are currently only two EVs selling for below $30,000: the Nissan Leaf, and the Chevy Bolt. Other manufacturers have struggled to bring prices down to competitive levels. The CEO of Mercedes told Bloomberg TV earlier this month that full cost parity between EVs and traditional gas-powered cars was “many years away.” But that hasn’t been a problem for Chinese firms.
“Our observation is generally that Chinese car companies are the most competitive car companies in the world,” Tesla CEO Elon Musk said in an earnings call last month. “If there are no trade barriers established, they will pretty much demolish most other car companies in the world.”
The only goods with tariff rates close to those of Chinese EVs under Hawley’s plan are obscure gasoline additives such as ethyl chloride and commodities such as loose peanut seeds (but only when imported from countries without normalized trade relations with the U.S.) According to the ITC’s 4,350-page tariff schedule.
Hawley made a particular point of noting Chinese EVs built in and imported from Mexico would not be excluded from the tariff proposal. Boosting production in Mexico has been floated as a potential tax loophole for Chinese manufacturers; because of Mexico’s North American trade status, EVs produced there would be exempt from any import tariffs. The Alliance for American Manufacturing called this backdoor an “existential threat” to the American auto industry in a report last week.
It’s uncertain if Hawley’s proposal will make it through both houses of Congress and the Biden administration as written—such a high and prominent tariff could spark retaliation from China. But other officials from both sides of the aisle, including U.S. Trade Representative Katherine Tai and representatives from the Commerce Department, have announced plans to investigate the effects of Chinese EV imports and review tariff schedules to protect American firms.
“The U.S. Response needs to work at all levels of the EV supply chain in order to defend U.S. Workers and businesses, correct distortions arising from China’s nonmarket policies and practices, and restore fair, competitive, market-oriented economic conditions,” Tai wrote in a letter to Congress last month.