Moves by other countries to impose higher tariffs on Chinese electric vehicles could benefit Australians shopping for a new car.
By Hussein Dia, Swinburne University of Technology
July 11, 2024
Australian car buyers could be the beneficiaries of new tariffs the European Union has slapped on imported electric vehicles from China.
The taxes of up to 37.6 percent which provisionally come into effect on July 5 for a period of four months before a final vote by EU member states, come on top of the existing 10 percent duties on vehicles imported into the EU, meaning Chinese-made EVs could face total tariffs of slightly under 48 percent.
This is unlike the Australian government which hasn’t signalled it will impose any barriers on Chinese EVs.
The European move comes after the United States announced in May similar plans to quadruple import duties — from 25 percent to 100 percent — on Chinese EVs.
These moves could be a good outcome for Australian consumers who should be able to access more affordable EVs particularly in the small to medium car market segments where EV choices available now are still limited.
The US administration justified the stiff tariffs, which will effectively double the list price of Chinese EVs, saying that Chinese automakers have benefited from unfair government subsidies and Chinese imports threatened President Joe Biden’s big investment plans in EVs.
The Canadian government is also under pressure at home and abroad to align its trade policy with its allies.
Canada has a tariff of around 6 percent on imported vehicles from China, but is being urged to impose at least 100 percent tariffs in an attempt to protect local jobs.
What is behind these tariffs?
In the EU, the tariffs aim to address the challenges faced by European automakers as a result of the influx of lower-cost EVs from China.
In 2023, almost a fifth of EVs sold in Europe were built in China, and are expected to reach a quarter in 2024.
The European Commission estimates Chinese EV prices are typically 20 percent belowthose of EU-made models.
In the US, there are still no Chinese-branded EVs for sale today although a handful of EVs made in China are on offer including Volvo and Polestar.
The proposed tariffs are seen as a pre-emptive measure to protect US automakers and local jobs, in response to China’s push to ramp up exports and offload overcapacity in international markets.
The US will also need to contend with Chinese cars built in Mexico, which could be imported into the US under the United States-Mexico-Canada Agreement.
Canada is also seeing a surge of imports of Chinese-made EVs.
Before 2023, EVs built in China accounted for a very small portion of Canada’s market, with imports from China representing only 1.2 per cent of the total value of EV imports.
In 2023, the number of cars arriving from China rose more than fivefold after Tesla started shipping its Model Y from Shanghai. Tesla now accounts for almost one-thirdof the Canadian EV market share.
Unlike other countries that are pushing for the tariffs, Australia does not have a local car manufacturing industry to protect.
How did China’s EV industry rise to such prominence?
In 2023, China beat Japan and became the world’s largest vehicle exporter for the first time, exporting nearly one million more vehicles.
Specifically, China’s overall battery EV exports rose 70 percent in 2023, reaching US$34.1 billion. The EU was the largest recipient of Chinese battery EV exports, accounting for nearly 40 percent.
China’s dominance in the EV market is a result of a targeted strategy that built on its strength in advanced battery technologies over the past two decades and its focus on an industrial policy that encouraged joint ventures with leading international EV manufacturers.
In the 1980s, the Chinese auto industry barely existed. Today, China builds EVs at an unprecedented scale that can supply half the world’s demand.
Chinese automakers are also building strong products that are higher quality than before at very competitive prices. They have also pursued strategies of vertical integration where they control the key supply chain components, such as battery production and sourcing.
For example, manufacturers like BYD not only build EVs but also produce their batteries which gives them a competitive edge in terms of cost, quality and supply chain security and reliability.
What also sets Chinese EV companies apart from their global competitors is their success in developing new business models that are based around software and services, with many recent entrants in the industry having backgrounds in technology, electronics and mobile devices markets, such as the popular smartphone maker Xiaomi.
By contrast, Apple recently abandoned its ambitious decade-long effort to build EVs after spending billions on the project.
Consumers are also receptive to Chinese cars.
In a recent survey in the US, nearly half of respondents said they were familiar with Chinese vehicle brands, and 76 percent under the age of 40 said they would consider buying a Chinese EV.
This shift in consumer behaviour, motivated by attractive and affordable EVs, paves the way for Chinese automakers to continue to offer vehicle configurations with universal appeal that surprise and delight users across different countries.
Will tariffs make a difference?
Experts are divided on whether the planned EV tariffs will work.
Proponents argue that although history shows tariffs rarely work and largely fail to achieve their economic goals, this time they might defy historical precedents and succeed for several reasons.
These include the need to reduce dependence on imports and boost local manufacturing to strengthen domestic supply chains, and perceived national security risks due to the possibility of embedded software being used for surveillance or cyberattacks.
Others have cited the need for tariffs because of the highly subsidised EV imports which makes it challenging for Western manufacturers to compete.
Such subsidies, they argue, include low-interest loans from state-owned banks, cheap land for factories from local governments, tax breaks and subsidised raw materials and parts from state-owned industries in China.
Critics of the EV tariffs, on the other hand, consider that in the long run, tariffs will not work in staving off the Chinese EVs.
They argue that tariffs represent temporary short-term protectionism that may delay but not stop the EVs from entering these markets.
Also, Chinese automakers may still be able to absorb the tariffs. Some Chinese EVs cost around US$10,000 — so even with a 100 percent tariff, they can still be competitively priced compared to US and EU models.
Chinese automakers are also making investments beyond their own borders through joint-venture plans to build car manufacturing facilities in Mexico and Europe.
This means, in the long-term, cars won’t need to be imported directly from China but can be sourced from these countries thus bypassing the tariffs.
Will the tariffs impact Australia?
The huge tariffs imposed on Chinese EVs in international markets could result in shifting more Chinese EV supply to Australia.
China is comfortably the third largest supplier of new vehicles sold in Australia, overtaking South Korea, the US and Germany in recent years — and behind only Japan and Thailand.
In fact, around 80 percent of EVs sold in Australia today are manufactured in China and Australian consumers are already reaping the benefits.
For example, BYD, which is China’s largest EV maker, has witnessed a sixfold growth in Australia in the past few years, and now commands 14 percent of the Australian EV market, which suggests a healthy appetite among Australian consumers for Chinese EVs.
Going forward, providing more options to consumers also means improving our chances to achieve the mandated emissions reductions targets, and consumers getting relief from cost-of-living pressures because EVs are cheaper to run than fossil fuel cars.
Consumers are already benefiting from the Australia-China Free Trade Agreementwhich has been in place since 2015 and the timing is right to deepen the bilateral trades.
This could, for example, include opportunities to bring Chinese EV manufacturers into Australia and set up joint ventures to establish local EV manufacturing capabilities.
This would provide local companies with the benefits of the innovation DNA that Chinese automakers have been able to create, and use it under a guided process and agile policies to drive further adoption of EVs in Australia.
Professor Hussein Dia FIEAust FASCE FITE is professor of future urban mobility at Swinburne University of Technology. His current work focuses on decarbonising urban transport and harnessing digital innovations to unlock opportunities for sustainable mobility futures.
Professor Dia receives research funding in areas related to the topic of this article from the Australian Research Council (ARC), the iMOVE Cooperative Research Centre, Transport for New South Wales, Queensland Department of Transport and Main Roads, Victorian Department of Transport and Planning and Department of Infrastructure, Transport, Regional Development, Communications and the Arts.
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Originally published under Creative Commons by 360info™.