Why the U.S. and EU tariffs on Chinese EVs make no sense
In this article, Jeffrey Frankel argues that the adoption of renewable energy and electric vehicles (EVs) in the US and EU has been accelerated by significant price reductions in solar panels, wind turbines, batteries, and EVs, largely driven by Chinese exports. Despite this progress, Frankel argues that recent policy decisions threaten to derail these advancements:
- On May 14, 2024, the US announced sharp tariff increases on many imports from China, including solar cells, lithium-ion batteries, and EVs (the latter facing a prohibitive 100% tariff).
- The US is also targeting other trading partners, with the International Trade Commission pursuing anti-dumping and countervailing duty protection against Southeast Asian producers of photovoltaic cells.
- The European Commission announced provisional tariffs averaging 31% on Chinese-made EVs, effective July 2024.
Frankel presents several arguments against these protectionist measures:
- Counterproductive to Climate Goals: These tariffs make it difficult to achieve clean energy targets, such as the Biden Administration’s goal for EVs to constitute half of all new cars sold by 2030.
- Economic Inefficiency: Frankel questions why Western countries want to charge the cost of clean-energy subsidies to their own taxpayers instead of allowing Chinese taxpayers to bear this cost.
- Job Market Impact: While protectionist measures are often justified by claims of job creation, Frankel argues that jobs created in manufacturing solar panels are offset by jobs lost in solar energy installation. EV production jobs are lost when tariffs increase prices for imported batteries. Export jobs are lost when trading partners retaliate against import restrictions.
- Inflation Concerns: With US unemployment at 4%, Frankel argues that inflation is the primary economic concern. Removing tariffs could help reduce energy and transportation prices, thereby addressing inflation.
Let China Pay the Cost of Solar Energy and Electric Vehicles
By: Jeffrey Frankel – Harvard University
More opinions
On the European Tariffs
Daniel Gros argues that the EU’s recent imposition of high tariffs (17% to 38%) on Chinese electric vehicles (EVs) is economically irrational and counterproductive to climate change efforts. Despite positioning itself as a climate leader, the EU’s decision prioritizes protecting domestic industry over accelerating the green transition. The tariffs make potentially cheaper Chinese EVs less competitive, leading to higher costs for European consumers and economic inefficiencies through trade diversion. Gros contends that given the global nature of climate change, countries should support green technologies rather than erecting trade barriers. He suggests that the EU and China should pursue an agreement similar to past resolutions of subsidy conflicts, which would foster competitive green markets and bolster the fight against climate change.
On the U.S. tariffs
David Henderson argues for a significant shift in U.S. electric vehicle (EV) policy to achieve multiple objectives simultaneously. Henderson suggests ending subsidies, mandates, and tariffs related to EVs. He believes that these changes would allow for the import of cheaper EVs from countries like China, making them more accessible to lower- and middle-income Americans. This approach would satisfy environmentalists by increasing the number of EVs on the road, while also allowing U.S. automakers to continue producing internal combustion engine vehicles, thus preserving auto workers’ jobs. Henderson contends that the current policy goals are unrealistic and that a free trade approach would better balance the various interests involved.
The Irrationality of EU Tariffs on Chinese EVs
By: Daniel Gros – Bocconi University
A Win-Win-Win-Win on EV Policy
By: David Henderson – Hoover Institution
