Slowing climate change has been a signature issue for President Biden. But Biden also has been an ardent booster of American manufacturing. Recently, he imposed $18 billion in new tariffs on Chinese electric vehicles (EV) and solar panels. The unfortunate effect: They likely will raise prices on fossil fuel-saving goods and discourage buyers from making climate-friendly choices, with little benefit to US workers.
Biden’s tariffs on Chinese exports to the US include a 100 percent levy on electric vehicles and a 25 percent tariff on EV and non-EV batteries, certain battery materials, steel, and aluminum. He also imposed a 50 percent tariff on solar cells and semiconductors and a 25 percent tariff on surgical gloves and facemasks.
Trump and Biden On Tariffs
Former president Trump has proposed much broader import taxes. At various times in recent months, Trump proposed a 10 percent tariff on all imported goods, a 50 percent tariff on all imported Chinese cars, and a 60 percent tariff on all Chinese goods.
After word leaked of Biden’s 100 percent tax on Chinese EVs, Trump responded by promising his rate would be 200 percent. Trump has said that he sees import taxes as a way to intimidate trading partners and revive all US manufacturing.
Biden’s narrower aim is to drive up the price of Chinese vehicles in an effort to give American EV makers the time they need to create a thriving domestic industry. As the White House said, “This action advances President Biden’s vision of ensuring the future of the auto industry will be made in America by American workers.”
Chinese Dumping
Biden’s initiative also is a direct response to alleged aggressive Chinese dumping of low-cost EVs aimed at dominating the world market, something it is doing in Europe though not yet in the US.
That’s one reason why Biden is trying to enlist the support of other industrialized nations in his effort to curb Chinese government’s subsidies to EV producers. Those subsidies make it possible for Chinese manufacturers to underprice competitors in the US and elsewhere.
In the short run, Biden’s EV tax will have little economic impact since almost no Chinese-made EVs are sold in the US. Similarly, US imports less than 5 percent of its aluminum and less than 1 percent of its steel from China. Curbs on semiconductors could have more short-term effects.
But over the longer term, protectionist industrial policy creates multiple problems, no matter the occupant of the White House. Among the challenges:
Tariffs usually increase consumer prices. Not only will prices likely rise for taxed imported goods but, absent foreign competition, domestic competitors will increase prices as well. Biden Administration officials insist tariffs have little impact on buyers but most economic research disagrees.
At a time when inflation is top of mind for many consumers—and voters—there is a real downside to government policy that raises prices. As a political matter, some tariff-related prices may not increase until after the election. But EV shoppers may notice that prices are remining stubbornly high despite sluggish demand.
Tariffs are at odds with efforts to improve the environment. Not only will tariffs keep low-cost Chinese-made EVs out of the US market, they also will allow US producers to keep their prices higher than they could with Chinese competition. In some cases, higher component costs will drive up prices for domestic products.
While we can’t yet know the effects of the new tariffs on EVs, there is plenty of evidence from previous import taxes. Here is what happened when the US imposed tariffs on washing machines in 2012 and 2016. And here is a 2023 government report that concludes that steel tariffs resulted in an increase in US prices.
And this NIH study concludes that ending trade barriers on solar panels would have a significant positive impact on the environment.
Biden has said the warming climate is an existential threat to the world. Yet, tariffs will raise prices on what otherwise might be affordable Chinese-made EVs. With demand for EVs already sluggish, tariffs may further slow purchases and hamstring an important tool to limit reliance on fossil fuels.
Tariffs could harm American workers. US manufacturers often rely on foreign components to make finished products. If those producers are unable to pass tariffs on those materials forward to customers, their profits will shrink. This could reduce investment, hurt wages, and ultimately slow consumer demand for all goods (even domestic products). Domestic workers also would be hurt if China further restricts its imports of US-made goods.
At the same time, there is little evidence that tariffs increase domestic manufacturing and jobs. Indeed, it more often costs jobs.
This isn’t the first time Biden has tried to perform an EV balancing act. His signature Inflation Reduction Act attempted to use a wide range of tax subsidies to boost both production and consumption of US goods. It included Buy American provisions that, for example, limited a generous $7,500 EV buyer tax credit to vehicles assembled in the US from certain components manufactured here.
Whoever is elected president this year, we are entering a period of growing bipartisan support for protectionism. At the very least, this trend will result in higher consumer prices. And when it comes to climate change, it will further weaken an already struggling effort to encourage the transition from fossil fuels to alternative sources of energy.
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