The tax battle in the electric vehicle sector

President Biden's decision is based on Section 301 of the 1974 Trade Act, which allows the US government to retaliate against trade practices deemed unfair or in violation of global standards. Lael Brainard, the national economic advisor to President Joe Biden, explained that: Applying a fourfold increase in tariffs on electric vehicles Made in China is to offset China's unfair practices and subsidies. According to him, this action will create a level playing field for current US automakers and workers. The US electric vehicle market has not officially seen the presence of major manufacturers from China. Polestar is the only brand present in this market through a collaboration between Chinese Gily and Volvo. Although most Polestar cars are manufactured in China, the company plans to assemble cars at a plant in North Carolina by mid-year. In addition, Neo and Zhai, a company that recently went public in the US, are also targeting the US market.

Owen Tedford, a senior analyst at Beacon Policy Advisors, believes that previously, the amount of Chinese electric vehicles imported into the US was relatively small, so increasing tariffs will not significantly impact the US market. However, according to AP, US officials are concerned that Chinese electric vehicles will soon flood the US market. The reason is the fierce price war taking place in the world's second-largest economy, with the participation of giants such as BYD, Great Wall Motor, and even Tesla. This has led the US to fear that Chinese manufacturers will seek to export to escape domestic difficulties. In February, BYD, considered a direct competitor to Tesla, announced plans to establish a plant in Mexico to serve the local market. However, the US government has pressured Mexico to reject incentives for Chinese manufacturers. In addition to electric vehicles, other Chinese products subject to tariffs in this round include solar energy panels, aluminum and steel, and medical equipment. The tariff rate for lithium-ion batteries, the type of battery used for electric vehicles, has been increased from 7.5% to 25% this year. The tariff rate for other types of batteries will be increased in 2026. China has expressed disappointment with this move by the White House, with a spokesperson for the Chinese embassy accusing the US of encouraging overproduction to dominate global trade. He believes that while the US claims to be willing to enhance cooperation with China on climate change, it is exaggerating the so-called excess capacity in the new energy sector and increasing tariffs on electric vehicles and solar energy products from China. According to him, increasing the prices of electric vehicles and solar panels will make the transition from fossil fuels to renewable energy more difficult.

Impact of tariffs

Although the new tariffs on Chinese goods may not have a significant impact on US GDP, inflation, and interest rates in the short term, this move is predicted to lead to a freeze in long-term US-China economic relations. For decades, countries around the world have used import tariffs as an effective measure to protect and promote the development of domestic industries. However, evidence from studies and history shows that the actual economic benefits of import tariffs often do not meet expectations. Economists argue that in the short term, these tariffs will not have a significant impact on US GDP, inflation, and monetary policy. For China, the additional tariffs may not have an immediate impact, as China's leading electric vehicle manufacturers have not yet made a significant presence in the US market. While solar energy panels are mainly exported through third countries. However, from a broader perspective, the economic landscape becomes more complex. These tariffs are a warning sign that US-China economic relations will freeze for a long time.

Joe Bruselas, an economist at RASMUS, believes that the most recent US tariffs on Chinese goods occurred under former President Donald Trump in 2018 and 2019. With a total value of affected goods of about $300 billion. This policy is still being implemented in the US presidential election campaign. Trump once declared that if re-elected, he would apply a comprehensive import tariff policy, not limited to Chinese goods. Economists have warned that this action could lead to widespread unemployment and increased inflation.

Impact on economic growth

The Biden administration is expected to implement new tax policies this year for most items, with a few remaining items to be implemented in 2026. This decision is made against the backdrop of the US labor market showing positive signs with strong growth and vibrant consumer demand. However, the fight against inflation has not yet reached a conclusion, forcing the US Federal Reserve to maintain high interest rates. Experts believe that President Biden's tax plan will not result in significant changes to US monetary policy. The new tariffs are unlikely to affect inflation and GDP, and monetary policy will not consider this factor when considering interest rate adjustments.

Impact on domestic production

In 2002, former US President George Bush implemented a tax policy on imported aluminum and steel. Subsequent studies showed that this policy caused the US economy to lose about $30 million. The tariffs also led to a sharp increase in production costs for industries using steel, resulting in widespread unemployment in the steel industry, especially in small-scale companies. Seven years later, former President Barack Obama continued to apply a tariff increase policy on imported tires from China. Although this move was expected to protect the domestic tire manufacturing industry, the results were the opposite. This policy led to the loss of 1,200 jobs in the US tire manufacturing industry. In addition, US consumers suffered losses of up to $1.1 billion due to higher tire prices, according to a study by the Peterson Institute for International Economics. Most recently in 2019, a study by the FED showed that the import tariffs imposed by former President Donald Trump did not effectively promote job growth in the manufacturing sector in the short term. Instead, this policy even led to layoffs, causing commodity prices to rise due to increased input costs. At the same time, it triggered retaliatory actions from other countries.

Impact on consumers

Economic expert Dr. Swit believes that applying import tariffs often has more political significance than economic benefits. He said that most economists believe that import tariffs are a bad idea because they prevent countries from benefiting from labor specialization. They disrupt the flow of products and services, leading to inefficient resource allocation. Import tariffs will make retail distributors and consumers bear additional costs. A 2023 study by the US International Trade Commission shows that retail distributors bear almost all the costs arising from former President Donald Trump's import tariff policy. The situation worsens when some businesses are believed to have taken advantage of the trade war to raise prices. Some US manufacturing sectors, although exporting products to countries other than China, still raise product prices citing increased import tariffs.

A report from the New York FED shows that the import tariffs imposed by former President Trump in 2018 made US households pay an additional $419 per year. Over time, the positive economic impact of import tariffs has become increasingly difficult to determine. A report earlier this year by the National Bureau of Economic Research shows that when considering factors such as import tariffs, retaliatory tariffs, and agricultural subsidies, the actual effectiveness of this policy is close to zero. In fact, this policy has negative effects on businesses and employment in the US.

Impact on trade balance

The COVID-19 pandemic has significantly changed the impact of former President Trump's import tariff policy on US production and trade activities. Before the pandemic, US import businesses had begun to seek alternative supply sources for goods from China. However, when the pandemic hit and consumer demand surged, domestic inventories quickly depleted. This led to a resurgence in imports from China, according to a Wells Fargo report in April. However, by the end of 2023, the volume of goods imported from the world's second-largest economy had decreased by 3% compared to 2019. In contrast, the volume of goods imported from other Asian countries to the US increased by 50%.

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