Don’t Slam the Door on Inexpensive Chinese Electric Vehicles
President Biden came out swinging this week when he announced a series of steep tariffs on Chinese imports, including 25 percent on certain steel and aluminum products, 50 percent on semiconductors and solar panels and 100 percent on electric vehicles.
The administration’s official reason for the policy is simple: Chinese imports are undercutting American manufacturers in swing states like Michigan, Wisconsin and Pennsylvania. And Mr. Biden wants to protect them from competition, as he pours huge amounts of government money into building up the manufacturing of electric vehicles and solar panels that can eventually compete with China’s inexpensive offerings. But the truth is, these new tariffs on electric vehicles are little more than a handout to legacy car companies like General Motors and Ford. Middle-class Americans should have access to these cars, and because of these tariffs, they will remain a luxury, available mainly to the rich.
With more cash and better credit, wealthy Americans are the only ones who can afford the electric vehicles currently on the market, which cost over $55,000 on average. A recent survey found that 83 percent of E.V. drivers in the United States had a household income above $75,000, which is the median in the country; 57 percent had incomes above $100,000.
Low-cost Chinese models that lower- and middle-income Americans could afford — like BYD’s Seagull, which runs for less than $10,000 — aren’t currently sold here largely because of tariffs over 25 percent. The new tariffs of 100 percent will make it even harder for these cars to compete in the U.S. market.
The hope is that one day, U.S. automakers can offer Americans the low-cost electric cars they have long promised. But that’s still a long way off, in part because the companies (with the exception of Tesla) have been slow to scale up their E.V. production to the point where the costs could come down. (And Tesla, too, has scrapped plans to sell a car under $35,000.) Every electric vehicle sold still cuts into the profits they make from selling gasoline-powered vehicles, and General Motors and Ford together sold fewer than 150,000 E.V.s in 2023, a tiny fraction of the 15 million new cars sold in the United States last year.
It is clear that American car manufacturers need to catch up to the competition, and fast. The problem with using tariffs to protect them from competition is that the companies then have less incentive to invest in new technologies. Chinese companies will continue making huge strides, selling their cars abroad while cutting off opportunities for American companies to export their own products to foreign markets. What’s more, Chinese cars could still enter the United States through the back door, if companies like BYD set up manufacturing plants in Mexico or Southeast Asia.
