On May 14, 2024, President Biden announced that the United States will apply Section 301 tariffs on an estimated $18 billion worth of goods, including a 100% tariff on all electric vehicles (EVs) from China. The new measure also imposes tariffs on key inputs to the EV supply chain for which China is a major—if not the sole—source, including permanent magnets, lithium ion batteries, and critical minerals. The announced tariffs come as China is taking a larger and growing global market share of EVs.
Following this announcement, on May 28, 2024, the United States Trade Representative (USTR) issued a request for comment on proposed modifications to the Section 301 tariff actions. USTR indicated that it will plan to end product-specific exclusion on over 200 products under Section 301 tariffs. USTR is accepting comments on the proposal until June 28, 2024.
The tariffs announced by the president are subject to existing Section 301 tariffs related to China's intellectual property, practices and cover a wide range of products apart from those in the EV supply chain, including medical supplies, solar cells, ship-to-shore cranes, and steel and aluminum products. In coordination with the president's announcement, the USTR also released its long-awaited Four Year Review on the Section 301 tariffs related to "China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property and Innovation." The review defended USTR's history of Section 301 tariffs against China, citing internal and external research to validate the claims that Section 301 tariffs result in lower rates of certain products from China entering the U.S. market, and that changes in Chinese policy in response to the Section 301 tariffs provided more favorable conditions for foreign businesses, including U.S. businesses, in China.
The announced tariffs for relevant EV product categories include:
- Increase in tariff on EVs from 25% to 100% starting in 2024
- Increase in tariff on battery parts (non-lithium ion batteries) to 25% in 2024
- Increase in tariff on EV lithium ion batteries to 25% in 2024
- Increase in tariff on lithium ion non-EV batteries to 25% in 2026
- Increase in tariff on natural graphite to 25% in 2026
- Increase in tariff on other critical minerals of 25% in 2024
- Increase in tariff on permanent magnets of 25% in 2026
- Increase in tariff on semiconductors of 50% in 2026
The tariffs on Chinese EVs also come amid a growing bipartisan interest in protecting the U.S. EV production capabilities. The tariffs are issued in tandem with efforts by the Biden administration to bolster those U.S. industries in competition with Chinese imports, such as through the Bipartisan Infrastructure Law, the Defense Production Act, and the Inflation Reduction Act, which extends grants and loans to the U.S. battery sector.
The new tariffs build on prior efforts to counter the impact of China's unfair trade practices by the Biden administration, with the rollout of the CHIPS and Science Act in 2022, providing domestic funding structures for new R&D activities; an August 2023 executive order from the White House limiting certain U.S. outbound investment in China's semiconductor industry and other advanced technologies deemed to pose national security risks to the United States; and the Commerce Department Bureau of Industry and Security's March 2024 Advanced Notice of Proposed Rulemaking examining connected vehicle transactions involving foreign adversaries.
They also come amid China maintaining an ever-larger share of the EV and critical minerals supply chain, and 2023 export restrictions of key critical minerals for the EV supply chain, such as battery-grade graphite. The critical minerals tariffed include manganese ores and concentrates; cobalt ores and concentrates; aluminum ores and concentrates; radium; uranium and its compounds, alloys, and mixtures; tungstates; and many other critical mineral products. Crucially, the announcement of new tariffs did not include tariffs on gallium, germanium, and rare earths, for which China is virtually the only producer.
In its request for comments, issued on May 28, 2024, the USTR announced that product exclusion will likely end on June 14, 2024. The full list of products for which there are product-specific exclusions can be found in Annex D of the Federal Register notice. The products vary widely, and include multiple pumps, heaters, filtering machines, basic machinery (such as switches and capacitors), and complex machinery (such as MRI machines, wind turbine parts, and electric motors). It also includes numerous medical products, chemical products, bicycle parts, household furniture, plastic and fabric material, and both natural and artificial graphite. USTR noted that of the 265 product exclusions about to expire, it had received comments requesting extensions for only 102 of them, and that USTR also considered domestic suppliers' comments in opposition of further extensions.
Finally, USTR noted new exclusion processes for industrial machinery classified under HTS subheadings 84 and 85 until May 31, 2024, and exclusions for certain solar manufacturing equipment under certain HTS code 8486 through May 31, 2025. USTR is accepting comments on the proposal until June 28, 2024. The docket opened May 29, 2024 and is available under Docket No. USTR-2024-0007.
Venable's Autonomous and Connected Mobility Group and the International Trade and Logistics team are available to advise on how the new U.S. tariffs may impact your business and investment activities related to electric vehicles
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.