In a bid to bolster the domestic electric vehicle (EV) industry, President Joe Biden has announced a series of tariffs on Chinese imports, including a 100% tariff that could significantly raise the price of Chinese-made electric vehicles. These tariffs, aimed at creating space for the growth of the U.S. EV industry, differ from previous tariff endeavors and could prove successful for several reasons.

Historically, tariffs in the United States have often failed to achieve their intended goals. The infamous Smoot-Hawley Tariff Act of 1930, for example, resulted in a decline in international trade and deepened the Great Depression. Similarly, President George W. Bush's 2002 steel tariffs led to higher steel prices and job losses in the American manufacturing sector.

However, these EV tariffs may defy historical precedent due to a few key factors. Unlike the solar panel tariffs imposed under the Obama administration, where Chinese-made panels already held a significant market share, Chinese-made EVs currently have negligible market presence in the U.S. This allows for the implementation of tariffs without causing major disruptions or significant price increases, giving the U.S. EV industry time to grow and compete effectively.

The Biden administration hopes to prevent the saturation of the U.S. market with low-cost Chinese EVs, which could undercut domestic manufacturers and hinder innovation. By imposing tariffs in the early stages, the administration aims to create an environment conducive to the growth of the U.S. EV industry.

Another factor that sets these tariffs apart is the changing landscape of global supply chains. The COVID-19 pandemic exposed vulnerabilities in international supply chains, prompting countries to reevaluate their dependence on foreign manufacturers and shift towards reshoring and strengthening domestic supply chains. Geopolitical tensions and risks associated with global supply chain disruptions have made EVs and their components, particularly batteries, crucial for national supply chain resilience. Ensuring a stable and secure supply of these components through domestic manufacturing mitigates these risks.

Furthermore, national security concerns play a significant role in the administration's decision. Chinese-made EVs are seen as potential cybersecurity threats due to embedded software that could be exploited for surveillance or cyberattacks. The resilience of an EV supply chain dependent on other countries is also a cause for concern in the event of a geopolitical conflict.

While the tariffs aim to curb Chinese competition, there is a possibility that Chinese EV manufacturers could bypass them by shifting production to countries like Mexico. This strategy has been seen before with Chinese solar panel manufacturers relocating production to other Asian countries to avoid U.S. tariffs. Chinese automaker BYD is already exploring the establishment of an electric truck factory in Mexico, where Chinese automakers accounted for nearly 10% of car sales in 2023.

President Biden's imposition of the 100% EV tariffs is seen as the beginning of a broader strategy rather than an isolated measure. U.S. Trade Representative Katherine Tai alluded to this during a recent press conference, suggesting that additional actions targeting vehicles made in Mexico are in the works.

While the immediate impact of the EV tariffs may not be substantial in the U.S., they could influence decisions in Europe. The European Union has witnessed a sharp rise in Chinese EV imports that undercut European-made vehicles due to lower pricing. This has raised concerns among manufacturers, and when the Group of Seven finance ministers meet later this month, tariffs will be on the agenda.

Biden's move to impose tariffs on Chinese EVs may serve as a catalyst for similar protective actions worldwide, reinforcing the global trend of securing supply chains and promoting domestic manufacturing. With the aim of fostering the growth of the U.S. EV industry, the success of these tariffs will be closely monitored in the coming months and years.