By Nicole Wakelin
The tariffs are supposed to help US automakers, but it's a short-term fix to a long-term problem.
Key Takeaways
- The US government is imposing a 102% tariff on Chinese electric vehicles.
- Tesla CEO Elon Musk thinks they might end up being harmful to the very automakers they're supposed to protect.
- While tariffs give automakers time to adjust their strategies, it's a temporary solution to a long-term problem.
The Biden administration recently announced a 102% tariff on electric vehicles produced in China. The idea behind the move is to ensure American workers keep their jobs and to protect the US auto industry from unfair trade practices. It's supposed to help companies like Ford, which builds the F-150 Lightning electric truck, and General Motors, which just launched the Chevy Equinox EV.
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The China tariffs aren't just on electric vehicles. There are also tariffs on steel, aluminum, semiconductors, batteries, and battery components. That's a comprehensive list and China, unsurprisingly, is none too happy. Making China happy wasn't the goal, but neither was inadvertently hurting US automakers, which some believe could be the unintended consequences of the new tariff.
Why Musk Thinks It Could Go Wrong
It seems like a solid strategy to combat an influx of cheap Chinese electric vehicles that would undercut what US automakers are selling. Right now, no Chinese automakers are even selling EVs in the US, but it's all about the potential for those cars to arrive on US shores. Sounds good, but Tesla CEO Elon Musk isn't so sure.
"Things that inhibit freedom of exchange or distort the market are not good."
- Elon Musk, Tesla CEO
As reported by Reuters, Musk made the comments at the Viva Technology conference in Paris on Thursday. "Tesla competes quite well in the market in China with no tariffs and no deferential support. I’m in favor of no tariffs," Musk added.
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Elon Musk's About-Face On Trade Embargoes
Musk's new comments are a bit confusing, as back in January he had a different opinion. "If there are no trade barriers established, they will pretty much demolish most other car companies in the world," he said of Chinese automakers at the time. His statements conflict, but he may be correct on both counts. It comes down to the tariffs being helpful in the short-term but potentially harmful in the long-term.
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While the tariffs will make it hard to bring in a whole variety of products from China, they don't stop those products from getting here eventually. What they do for US automakers now is give them time. They just have to use that time wisely.
A Game Of Catch-Up
Stephanie Brinley, Associate Director, S&P Global Mobility told CarBuzz, "One of the key elements here is that this is a long-term issue." This isn't something the industry or the government is going to solve overnight.
"US automakers need time to figure out where they can get the resources they need to build EVs."
- Stephanie Brinley, Associate Director, S&P Global Mobility
Electric vehicles are a costly proposition, and US automakers are losing money on EVS. Tariffs will give them time to change course and make EVs profitable. They're good in that they give US automakers breathing room and a chance to make their EVs competitive.
Innovation Is Key
Tariffs give automakers time to adjust, but without that Chinese competition, how quickly or effectively the industry will change is unknown. It's a large undertaking that involves suppliers, labor, and technologies, but it all comes down to profit.
"Tariffs don't encourage innovation, but with EVs, automakers have to innovate because they're losing money."
- Stephanie Brinley, Associate Director, S&P Global Mobility
Roger BiermannAutomotive Journalist
Expert Opinion
More ramifications will reveal themselves in the coming months, and we've already seen China trying to impose its own sanctions on American vehicles as a result. China has a healthy local manufacturing sector - but American brands have been prevalent in the People's Republic for some time. Buick is one such example, with GM saving the brand from the chopping block purely because of its popularity in China. But if these sanctions worsen the trade tensions between the two countries, how long will it be before American companies lose out altogether? With the rate at which Chinese vehicle development has ramped up, this could be sooner than later.
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Source: Reuters
