Joe Biden is a modern Don Quixote. He brandishes trade tariffs against Chinese car behemoths and their unfair competition to ensure “the future of the auto industry will be made in America by American workers”. His fight seems righteous and unconditional. 

President Biden’s romantic struggle may well be one for the ages, but it’s unfortunately pointless. He is fighting windmills — made in China, I suppose. It won’t affect the trajectory of the US automotive industry, which is already doing well. It won’t trigger a wave of Chinese automotive FDI into the US either. 

His decision to slap a 100% tariff on electric vehicles made in China announced on May 14 brought to mind the trade spat between the US and Japan that culminated with Japan introducing voluntary exports restraints (VERs) for its cars in the early 1980s. VERs eventually prompted Japanese producers to set up manufacturing facilities in the US to jump the new restrictions. Most of them have flourished over the years and today are the backbone of the automotive industry in southern states. 

VERs were introduced even though the bipartisan US International Trade Commission had determined that the millions of Japanese cars imported in the US were not, ultimately, a serious cause of substantial injury to the domestic industry. If the same criteria were applied today, Chinese imports wouldn’t be a threat either. In fact, they wouldn’t meet the very first condition — ‘there are increased imports of an article into the US’ — to trigger a determination by the ITC under the terms of Section 201 of the 1974 Trade Act. 

To date, US imports of electric vehicles made in China are marginal. Chinese OEMs are not selling any passenger car in the US; the only imports come from US producers manufacturing some of their models in China and selling them back in the domestic market. Biden’s fresh 100% tariff on EVs imported from China will therefore have zero impact on Chinese producers; ironically, and provided they apply to any EV imported from China, they will solely affect US companies. 

For the sake of argument, is the sole hypothetical threat of Chinese EV imports a cause of serious injury to the US auto industry? Hardly. Car sales are recovering and US car producers have been posting strong profit figures. The industry is currently employing more than 1.06m workers, the highest level since 2006, according to Bureau of Labour Statistics figures. 

Ultimately, the idea that Mr Biden is introducing 100% tariffs on Chinese EVs to protect US workers and the US car industry is bogus. The new tariffs originate in Section 301 of the 1974 Trade Act, which was originally brought back by then-president Donald Trump in 2018 as a way to fight Chinese trade practices. “These measures follow determinations that US companies face barriers to doing business in China as opposed to determinations that US industries have been harmed by import surges,” as succinctly explained by international law firm Steptoe in 2018. 

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Will Chinese automakers follow in the footsteps of their Japanese counterparts and set up manufacturing facilities in the US to jump the new tariff wall? Even if they were allowed to do so, they wouldn’t for several reasons. Unlike Japanese producers, they don’t currently have any market in the US. Besides, they will struggle to access any public subsidy. With no market and public support, local operations of Chinese EV producers would initially face low revenues and high fixed and production costs; in other words, a recipe for disaster. Not to mention the other hurdles they would face through supply chain security policies, sanctions lists, export controls and industrial policy provisions. 

In the meantime, their US competitors will continue to rack up billions in subsidies and other incentives. As much as Chinese EV producers have been subsidised in China, so have Detroit’s big three in the US. Ford and GM, in particular, have accumulated subsidies to the tune of more than $15bn and other state support in the form of loans and bailout assistance for almost $85bn since 1966, according to data from research firm Good Jobs First. Only Boeing has received more. 

Mr Biden has followed in the footsteps of his predecessor, Donald Trump, to circumvent a bipartisan body like the ITC and a multilateral one like the WTO and weaponise foreign trade as a tool of foreign policy. His uncompromising crackdown on nonexistent EV imports from China may well give his policy a romantic aura and gain him some votes at elections in November, but ultimately fighting windmills will yield nothing. In fact, it will only compromise further the relationship with China and the governance of global trade. 

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