The White House announced on Tuesday, May 14, 2024, that he will raise tariff on electric vehicles (EVs),  from the current 25% to 100% to take effect in 2024. In addition, the tariff rate on lithium-ion EV batteries  will increase from 7.5% to 25% in 2024, while the tariff rate on lithium-ion non-EV batteries will increase  from 7.5% to 25% in 2026. The tariff rate on battery parts will increase from 7.5% to 25% in 2024. Tariff on  steel, and aluminum products will increase from 7.5% to 25%, and tariff on solar cells will increase from 25%  to 50%. The tariff rate on semiconductors will increase from 25% to 50% by 2025. In addition, the White  House imposed a duty of 25% on port cranes.  

Related Article: U.S. Increases Tariffs on Chinese Imports to Protect Domestic Industries

“Senior Biden administration officials said they delayed the start of some of the tariff increases to give U.S.  industries time to rejigger their supply chains. The White House said the new tariffs would apply to $18 billion  in products from China, with EV batteries, critical minerals, and medical products among the other goods  targeted. The tariff rate for Chinese semiconductors would double by 2025—to 50% from 25%.” Source:  WSJ. May 14, 2024 

Here’s a synopsis of how China may retaliate against the USA and its interests globally and in China  specifically: 

China is likely to respond to Biden’s tariffs on Chinese electric vehicles (EVs) from Mexico in several ways.  Here are some potential actions: 

China may impose retaliatory tariffs on U.S. goods, targeting sectors that are strategically important to the  United States. This approach would mirror the U.S. tariffs on Chinese EVs and other products. 

Related Article: U.S. Tariffs on China: Echoes of History and New Supply Chain Challenges

In addition, China may put in place non-tariff measures to hinder U.S. companies operating in China. For  example, they could increase regulatory requirements, scrutinize companies’ imports, exports and other  operations, delay approvals, or create administrative obstacles for American businesses.  

China may also set up a production facility in Mexico to avoid direct U.S. tariffs, if they meet local  production requirements. As a matter of fact, despite US pressure on Mexico’s government not to offer any  incentives to China for its plan to build EVs in Mexico, according to Reuters, China’s BYD launched a hybrid  pickup in Mexico as US increased tariffs on EVs. Stella Li, CEO of BYD in the Americas, stated that those  trucks will be built for the Mexican market to satisfy the growing demand, and that BYD “has no plans to go  to the U.S. market, so this announcement (the increase in tariffs) does not impact us at all.”  

In addition, China may exert diplomatic pressure on the U.S. government, urging them to reconsider the  tariffs. This could involve high-level discussions or negotiations between the two countries. 

As a last resort, China may request that its consumers boycott U.S. goods including but not limited to EVs  made in the USA. Such boycott could impact the sales of US companies in the Chinese market.

The Biden tariffs’ impact is not limited to large corporations. The increase in tariffs on EVs will impact small businesses and entrepreneurs as well negatively and positively. 

Starting with the negative effects, inflation is front and center. The ultimate users will face higher prices  which may prevent them from purchasing EVs, therefore, a decrease in demand. As a result, dealers,  distributors, and solopreneurs will be affected negatively.  

In addition to inflation, financial disadvantage will affect small businesses and entrepreneurs who rely on  lower cost Chinese parts and who may not have the financial advantage (deep pockets) that allow large  corporations to withstand cost increases.  

Add to that the supply chain disruption as small businesses and entrepreneurs may not have any alternatives  to find suppliers/sellers who may offer competitive prices to match those of the Chinese manufacturers and  sellers. Even if they did, the minimum quantity required may be prohibitive to them financially and capacity  wise.  

VUCA, (Volatility, Uncertainty, Complexity, and Ambiguity) created by the tariffs much larger headwinds  for entrepreneurs and small businesses than for large corporations who may be able to absorb cost volatility  and product availability.  

When it comes to domestic positive effects, small businesses and entrepreneurs may benefit from the tariffs  as domestic manufacturers may gain market share. As a result, benefiting small businesses and entrepreneurs  who are in the production, distribution, or sale of domestically manufactured EVs and parts. This market share  gain may result in an increase in employment for small businesses and entrepreneurs who are involved in  manufacturing, maintenance, or assembly.  

Moreover, the increase in domestic sourcing will put an upward pressure on cost due to higher domestic  wages caused by the increase in tariffs which will force importers to procure locally from US manufacturers  and suppliers, or internationally from countries where the import tariffs are much lower than those imposed  on Chinese products. In both scenarios, the cost reduction will benefit small businesses and entrepreneurs.  

The increase in tariffs may increase the stock value of clean energy startup companies. Due to the decrease  in Chinese competition, and the increase in domestic demand (if the current consumers’ behavior changes), clean energy startups will be better positioned to innovate. This will lead to new patents and additional product  launches to the market, which, in turn, will lead to an increase in investors’ confidence.  

This situation is complex. China’s response will depend on various factors, including political considerations,  economic interests, and the U.S.-China relationship at large. 

Diplomatic channels and negotiations will likely play a crucial role in determining the outcome.

Author Bio

Omar Kazzaz specializes in business strategy and development, contract negotiations, BPI (Business Process Improvement) as well as geopolitics and their effects on global trade, logistics and supply chain design, planning, and execution. Omar has 32 years of experience in international business, manufacturing, global logistics and supply chain.  

Mr. Kazzaz has been involved in numerous panel discussions on business negotiations, supply chain, global trade, and global logistics. His comments on international trade agreements, global manufacturing and supply chain have been quoted in publications such as The Charlotte Observer, The Journal of Commerce, Global Trade Magazine, Supply and Demand Chain Executive among other publications. 

Mr. Kazzaz holds an MBA in International Management from Thunderbird, The American Graduate School of International Management in Glendale, AZ, and a BA in German and Economics from The University of North Carolina at Charlotte. Besides his native Arabic language, Mr. Kazzaz speaks French and German.