New Import Tariffs Will Further Delay the “Transition” to an All-Electric Vehicle Market
Maybe the intention is to eliminate personal transportation altogether. Think it can’t happen here?
Image: Detroit Free Press.
For those of you educated in matters related to business and economics, you already know that trade barriers are destructive to a country’s economic growth. Having affordable materials for domestic production of goods contributes to economic and job security. Purposely making things more expensive in an already wobbly economy with declining purchasing power is counterproductive.
Our benevolent government has recently slapped huge tariffs on selected Chinese imports that will make anything using the affected materials much more expensive. Those items include steel, aluminum, graphite, solar panels, and semiconductors among others. The tariff increases range from 25 to 50 percent from previous levels.
But EVs from China? They’re getting pounded with a 100 percent import tariff, effectively doubling the price the market would have otherwise paid. Weren’t we supposed to be encouraging people to “transition” to EVs? If so, why would you purposely double the price to consumers? It isn’t like China will be paying these tariffs, after all.
Market Distortion Beyond All Recognition
Bans on gas-powered vehicles and mandates toward purchasing EVs are distorting the market quite enough. But add in the import tariffs and you now have created this cognitive dissonance of having two conflicting ideological positions in place. One, we must promote EV adoption by any means necessary. Two, we have to ensure they are unaffordable to people with average household income by intentionally doubling the purchase price. Huh?
The New York Times claims that this enormous increase in tariffs on EVs from China is okay this time around, because we’re now trying “to beat Beijing in the race to own the clean energy (EV) future.” Why do we even assume that winning the EV war is a good thing? Has anyone noticed that legacy automakers (not named Tesla) are losing a huge amount of money within their EV divisions?
Even with mandates, tax breaks, subsidies, and saturation media touting the alleged benefits of driving an EV, automakers lose around $6,000 on every $50,000 EV they sell. Ford reports it is losing $100,000 on each EV it produces. Ford’s EV division lost $2.1 billion on EVs in 2022, it lost $4.7 billion in 2023, and the company projects it will lose over $5 billion in 2024. GM does not break out the financial performance of its EV division, but one can assume a similar scenario.
A Twenty-Year Head Start
For decades, the Chinese government has made huge investments in its EV sector allowing Chinese automakers to offer most models to sell below their manufacturing cost through massive state-issued subsidies and incentives exclusive to EVs. It also helps that China has a vertically integrated EV manufacturing and supply-chain system that does not rely on external resources. They own the lithium mines in Africa, they own the battery factories in Shenzhen, and they build out EVs using insourced battery technologies that can be made cheap.
American legacy automakers cannot pull this off profitably and cannot rely on their gas-powered business sectors to prop up their EV divisions much longer. Import tariffs are probably the worst tactic to deal with this economic imbalance but there might not be any other option at this point.
These import tariffs will allow Ford and other automakers to function in the market with less genuine competition. Imagine Tesla having to compete with the BYD Seagull at a $10,000 purchase price when Tesla’s cheapest EV is just over $40,000. Yes, they’re different cars, however anyone wishing to own a new compact utility EV for short trips should at least have the option of buying one at its intended price. Why deny the EV market of choice by intentionally doubling the price of the entry-level competitor?
Import tariffs, much like minimum wage labor laws, play on good intentions. But all they really do is raise costs for consumers and businesses, undermining innovation in the process. It is a tax of a different name, and it comes at a very troubling time.
Speaking of timing, given the upcoming presidential election and the need for union votes as well as the votes in swing states such as domestic automaker-centric Michigan, it looks as though the word “pandering” isn’t sufficient. Like so many other bad ideas put forth in recent years, extreme economic protectionism will be felt by everyone whether they vote or not. Another tactic for short-term gain with long-term consequence.
Do the Import Tariffs Apply to EVs Made in Mexico?
There is nothing in the official announcements to suggest that Chinese companies building EVs in Mexico are under the same tariff schedule. It was reported earlier this year that three large Chinese automakers, BYD, Chery, and MG, are making multi-billion-dollar investments in EV manufacturing facilities in Mexico, using the USMCA trade agreement as a vehicle to import their EVs into the U.S. Kind of a “backdoor” approach, and one that has yet to be addressed.
If there are short-term interests to address for expediency, such as winning elections in swing states and keeping the American automakers’ union placated to win an endorsement, don’t be surprised if the U.S. violates the terms of the USMCA and imposes tariffs on Mexico-built EVs as well. There isn’t enough cynicism one can have when weighing in on this and so many other circumstances surrounding the “clean energy” movement.
Accelerating the public’s “transition” from gas-powered vehicles to EVs, creating more demand for charging stations, promoting the training of EV mechanics…all of these would be made possible through allowing the public to purchase affordable EVs. The inflow of low-cost Chinese EVs could have been a good thing for the dream of this EV “transition,” but the denial of making affordable EVs available to the public signals a different intention – that the people having affordable personal transportation choices is unacceptable to an ever more intrusive government authority craving absolute control over its citizen population.