Biden’s China Tariffs Is An Own Goal
The cost of Washington’s de-sinicized EV transition may be dire
In 2021, Biden offered the American voters an alternative to trade barriers touted by the self-acclaimed “Tariff Man” in the Oval Office. “We're going after China in the wrong way,” he said during the bumpy ride to the White House.
Three years later, Biden, surrounded by union members, signed documents that increased tariffs on US$18 billion worth of imports from China, including electric vehicles (EVs), solar panels and advanced batteries. Only this time, his determination that “the future of electric vehicles will be made in America by union workers” will most likely fail to create more jobs and cost the country’s green transition even more dearly.
The Myth of Clean Job Creation
Biden has burnished his pro-labor persona by making a precedent-breaking visit to the picket line outside a General Motors (GM) plant during a strike last fall, demonstrating the crucial role labor plays in the upcoming election. Job creation during the green transition is a central plank of Biden’s wooing of the union backing. And quadrupling tariffs on Chinese EVs is an integral part of his plan to add more jobs in American manufacturing by countering the so-called “China’s unfair trade practice”. But will this protectionist play help Biden deliver on his promise of creating “good-paying jobs” for Americans, history may give us some inklings.
Both his predecessors, Obama and Trump, prioritized boosting manufacturing employment through limiting imports, but neither really succeeded. Trump’s sweeping tariffs on many goods from many countries were a total bust, as the U.S. trade deficit as a share of GDP was practically unchanged over his presidency. Instead, studies have found that it was the American companies and consumers who bore almost all the costs of the tariffs, and economists even found a small loss of jobs, and farmers who faced retaliatory tariffs on their goods required tens of billions of dollars of assistance to avoid bankruptcy.
Economists agree that the supporters of tariffs who hate to see job loss tend to see imports as an easy target in the blame game. Biden, like other trade skeptics, simply refuses to learn how small the net employment effect of trade is, and they also tend to paint a far too rosier picture about the number of jobs the green transition would create.
In 2021, Biden proudly cast his policy to combat climate change as a grand plan to boost employment, as he claimed that his administration would grow the economy with the addition of a million new auto jobs. But his math was termed as “fuzzy” as he failed to calculate how many jobs would be lost during the green transition. As of now, the number of auto jobs the plan has created is still half of a million shy of his promised goal, even by the most relaxed standard.
There is a consensus among industry insiders suggesting that some of the new auto-related jobs would come at the expense of the current ones. And EV manufacturing normally requires a smaller workforce than that of the traditional one as EVs generally have 30 percent to 40 percent fewer parts compared with their gas-powered counterparts, so fewer workers will be needed to assemble them. As Ford pivots to EVs, the company in 2022 cut 3,000 salaried and contract jobs, mostly in North America and India, followed by another massive 3,800 layoffs in Europe the following year.
The same pattern also applies to the solar industry. In 2015, the state of New York committed nearly US$1 billion for Tesla’s solar factory in Buffalo in exchange for 5,000 new jobs. But over eight years after one of the biggest public cash outlays being announced, only 1,700 new jobs have been created by the project, and of all the plant’s 1,700 workforce, hundreds are low-paid desk-bound data analysts. So, manufacturing clean energy domestically doesn’t necessarily bring about a surge in job opportunities, and it can hardly offset the job losses during the transition should everything be done right.
Turning the “Legacy Brand” Tanker
Legacy U.S. automakers, like Ford and GM, are still heavily relying on sales of gas-guzzling trucks and SUVs for profits as they have been bleeding market shares outside North America. The situation is particularly bleak for GM whose market share in China, once a carmaker’s growth engine, has plummeted from roughly 15 percent as recently as 2015 to 8.6 percent last year, as it has been slow to embrace changing consumer sentiment while facing increasingly fierce competition from local brands.
A newly published report from Counterpoint Research showed that sales of EV units globally were up 18 percent in the first quarter of 2024 relative to the same period last year, and this growth in demand was mainly driven by China. Chinese EV makers including XPeng, Li Auto, Nio, and BYD have all reported a jump in sales for the first three months of 2024, with BYD, which recently overtook Tesla as the world’s top EV seller, seeing an 80 percent surge in profit in its first set of annual earnings.
But for the U.S. automakers, the EV production arm seems to be a kryptonite to their ability to stay in the black. Ford’s EV unit reported that losses soared in the first quarter to US$1.3 billion, or US$132,000 for each of the 10,000 vehicles it sold in the first three months of the year. In the same month, the company decided to delay the planned launches of its electric SUVs in Canada and its next-generation electric pickup truck built in Tennessee, citing profitability issues.
For GM, the lackluster track record in EV innovation has also led to a “substantially negative” margin for every EV it sold, according to the company’s CFO Paul Jacobson. And late last year, GM decided to curb EV production by abandoning its plan to build 400,000 EVs from 2022 through mid-2024. American carmakers simply do not want to wait years for the money invested in research and development to be paid off, and picked a fight with the powerful labor unions who would like to see their members’ wages and benefits untouched.
U.S. drivers, who now only have about 50 electric models to choose from, are irritated by the lack of affordable EV options. Europe’s fleet is almost double that, and China’s nearly triple. With the lineup mostly made up of small and medium options, the price tags are not likely to break the bank.
In the U.S., a gas-powered variety remains a more economical choice for consumers. According to data from Cox Automotive, a new EV costs about US$5,000 more than a new gas-powered one. Although the price gap has narrowed dramatically from US$17,000 two years ago since EV giants like Tesla have slashed prices for certain models, the lack of outside competition, especially from the dominant player in the sector like China, will give American automakers even less push to innovate. In other words, the reality of high prices and limited options is going to linger, and they will make it harder for consumers to go green, thus stalling EV adoption in the country.
So, by imposing tariffs, of more than 100 percent, on EVs from China, the Biden administration has pretty much ensured that no Chinese automakers would ever think about exporting to the country. But judging from how little progress U.S. brands have made thus far, even with taxpayer-funded largesse, this protectionist measure is most likely to further blunt domestic automakers’ ability to go electric.
Slower Pace Toward Climate End Zone
Biden helped reclaim some of the U.S. moral standing in the global community by re-committing his country to the Paris Agreement, after the dramatic withdrawal signed off by Trump in 2017. Once rejoining the pact, Biden set forth the ambitious target to realize “a carbon pollution-free power sector by 2035” and de-carbonize the U.S. economy by 2050.
The U.S. has been off-track for its climate goal so far despite having some work in progress. A new report published by Rhodium Group said that U.S. carbon emissions declined by 1.9 percent in 2023. A step in the right direction notwithstanding, the figure is still far below the rate that is needed for Biden to meet his climate target in 2030, which is to achieve a 50-52 percent reduction from 2005 levels. To reach Biden’s goal, emissions would have to decline at a rate more than triple the 2023 figure and be sustained at that level every year until 2030, according to the author of the report.
According to statistics, of all the emitting sectors, transportation accounted for the largest portion (about 28 percent) of total U.S. Greenhouse Gas (GHG) emissions. And there were about 1.3 million EVs added to American roads in 2023 — for a roughly 9 percent penetration rate. That's about half the global average, leaving the U.S. lags far behind China and Europe in EV adoption. But even with that in mind, what the Biden administration has done in this particular regard has been disheartening. This March, Biden slashed its EV adoption target from 67 percent by 2032 to just 35 percent after auto industry backlash in the political battleground state of Michigan to appease labor unions, breaking his promise of having half of the cars in the country be zero-emission by 2030.
But giving its automakers more leeway to meet the emission standard is often construed by many as “a half-measure that delays the EV transition” as the U.S. clean energy deployment has already been bogged down by supply chain issues, interest rate increases, and other financial challenges, and slow progress on transmission. And Biden’s so-called “targeted strike” against a chunk of Chinese clean energy components and finished products, all key tools to fight global warming, is expected to further exacerbate the ongoing negative trend.
For years, China has spent a huge sum investing in the latest clean energy technologies and nurtured the growth of its industries, helping drive down global prices. Increasing tariffs on imports from China could raise costs in the short term and slow down the deployment of EVs, solar and wind technologies, and other renewable energy systems, according to economists. Given China’s dominance in renewable energy technologies, it is extremely challenging and costly for the West to “de-couple” with China in products necessary for the transition to a green future. According to energy consultancy Wood Mackenzie, the global energy transition would add an extra US$6 trillion, on top of the US$29 trillion worth of capital expenditures, it estimates would be required through 2050 to reach net-zero carbon emissions, to the bill, a staggering 20 percent increase in cost, if the affordable Chinese clean tech was shunned.
Many experts said that the additional 100 percent new tariffs on Chinese EVs will effectively seal off the U.S. car market to the biggest global producers of EVs. Even Tesla Founder Elon Musk, who potentially has the most to gain since his EV giant’s market share has been squeezed by the likes of BYD both in China and overseas, has come out and denounced Biden’s protectionist move.
Soon after getting a whiff of Biden’s new tariff regime, Donald Trump, Biden’s rematch election rival, promptly vowed to slap 200 percent tariffs on vehicles made in Mexico by Chinese companies should he be re-elected. So, the race to hold the highest office in the most powerful country in the world has basically been reduced to a battle for which candidate can be tougher on China while willfully disregarding genuine practical issues that need to be confronted head-on. We are through the looking glass here, people.
Tian Zijun and Chen Pu are journalists with Xinhua News Agency, China’s official newswire, and also researchers of Sinical China.
Xu Zeyu, founder of Sinical China, is a senior journalist with Xinhua. Follow him on Twitter @XuZeyu_Philip
Disclaimer: The published pieces in Sinical China reflect only the personal opinions of the authors, and shall NOT be taken as Xinhua News Agency’s stance or perception.