The Biden Administration has drastically increased import tariffs on a wide range of goods from China. These include EVs, lithium-ion batteries (both EV and non-EV bound), solar cells, semiconductors, and other critical materials. The government cited China’s unfair trade practices that were threatening American business and workers for the reason of the tariffs, commenting China was “flooding global markets with artificially low-priced exports”. This comes in the context of the Biden Administration aiming to onshore industry in the US.

What do the tariffs affect and when will they be implemented?

From 2024, the rate for electric vehicles will increase from 25% to 100%, the rate for lithium-ion EV batteries will increase from 7.5% to 25%, whilst the tariff rate on certain critical minerals will increase from 0% to 25%. Tariffs on solar cells will also increase from 25% to 50%.

From 2025, the tariffs on semiconductors will increase from 25% to 50%.

From 2026, the tariff rate on lithium-ion non-EV batteries will increase from 7.5% to 25% and the tariff rate on natural graphite and permanent magnets will increase from 0% to 25%.

Who will these tariffs affect?

The EV tariff, while substantial, is expected to have minimal impact on the industry since there are next to no EVs being exported from China to the US and few plans to enter the market due to the expectation the administration would look to erect barriers.

However, one notable consequence of the lithium-ion EV battery tariff will be felt by Tesla first. While Tesla does not export its EVs from China to the US all of Tesla’s US-bound LFP cells are currently sourced from CATL’s Chinese plants, the immediate implementation of changes will severely affect the company without allowing sufficient time to strategise ways around the tariff. This is especially painful as the LFP-bearing models recently lost eligibility for the IRA tax clean vehicle tax credit, eroding much of their value-for-money against the longer-range versions. At a time when Tesla is looking to stimulate demand and retain positive margin, this tariff is certainly difficult.

Tesla is not the only OEM looking to LFP, with General Motors’ next generation Chevrolet Bolt set to use LFP from next year. Ultimately a tariff such as this may hamper the arrival of some affordable vehicles.

The impact beyond EVs

Non-EV lithium-ion batteries will see the same tariff uplift to 25%, however, this time not until 2026. This is a crucial difference for the ESS market. Energy Stationary Storage (ESS) is a market heavily reliant on LFP chemistry batteries, with almost no domestic supply the vast majority of these are also imported from China and an immediate tariff uplift could have had drastic impacts on installations.

The 2026 implementation date comes after major ESS-supporting LFP facilities are due to come online in North America, such as Freyr’s Giga-America, LG Energy Solution’s Arizona facility and Tesla’s Nevada expansion using CATL equipment. This should ease the transition to the new tariff however it is not certain that these facilities will be able to operate at a cost less than 25% above Chinese counterparts, especially given the extra time Chinese players will have to further reduce costs within already-scaled manufacturing operations.

Rho’s Evaluation, what this means for the US and further afield

These tariffs significantly bolster US market protectionism to safeguard domestic manufacturing. Yet, such measures run the risk of hampering innovation and driving up costs for American consumers.

However, the postponement of tariffs on items such as natural graphite, permanent magnets, and non-EV lithium-ion batteries underscores the US’s reliance on China for these goods. A two-year grace period provides the industry with the opportunity to diversify away from Chinese suppliers.

Expanding beyond the US, these tariffs set a precedent for Europe to follow suit to some extent. With an investigation underway by the European Union, many expected a 27.5% tariff to be the result – matching the US – on Chinese EV imports. Now with a much higher bar from the Biden Administration it may open the door for a more drastic measure in Europe. The difference in dynamics between these two markets may prove crucial. Many more of Europe’s electric vehicles already come from China, OEMs have JVs and manufacturing in the region and affordability is a key issue as penetration rates reach much higher levels than the US.

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Sources: The White House