Is Fear of China Leading to Increasing Tariffs?

Western democracies are increasingly concerned about China’s overproduction of key goods, seeing it as an effort to dominate supply chains and undercut their own industries. Battery-electric vehicles have become a major target as Chinese firms such as BYD Co. move aggressively into global markets.

China remains the single largest manufacturing economy and exporter in the world. Large swathes of industry have started to move out, including textiles, power tools, and electronics. But fast development in other sectors, such as electric vehicles and renewable energy, make the country even more crucial to certain parts of the global economy. As a result, you can find a statistic to support your position, whether you believe globalization of trade is continuing, reversing, or stagnant.

In May, the administration of US President Joe Biden announced plans to nearly quadruple tariffs on electric vehicles manufactured in China, imposing a final rate of 102.5%. Last week, the European Union revealed its intention to raise tariffs on Chinese electric vehicles, with some levies reaching up to 48%.

People acquainted with the situation claim that Canada is getting ready to impose new tariffs on Chinese-made electric cars in order to bring it in line with the US and EU.

China already has more capacity than it needs to produce batteries, can produce cells for a much lower price than in the US and Europe, and has an advantage over other countries in terms of cell technology. Due to all of this, the world runs the risk of lagging farther behind in the competition to develop and provide the energy for future EVs.

China, which has been developing battery technology for decades, already controls more than 80% of the market, leading on cost by a wide margin. More recently, China managed to vastly improve the quality of a much cheaper battery cell that uses no cobalt or nickel, triggering ACC’s review to consider shifting to lithium iron phosphate, or LFP, cells.

In addition to producing the greatest number of batteries, China also controls a significant portion of the industry’s supply chain, particularly when it comes to the production of anode and cathode cell components and the reprocessing of important minerals like lithium, nickel, cobalt, and graphite.

The stakes are high: If US, Europe, and India fail to establish its own EV battery value chain, as cells replace the combustion engine, large parts of the automotive industry — will follow solar panels, consumer electronics and chips in shifting to China.

India’s Approach?

The Confederation of Indian Industry (CII) stated in a report recently that India’s “heavy reliance” on China for electronic components poses a “significant risk” to its domestic manufacturing ecosystem. The industry body also called for a revised PLI to support local manufacturing of critical components.

According to the report titled “Developing India as the Manufacturing Hub for Electronics Components and Sub-Assemblies.” China accounts for 62% of India’s imports of electronic components, which poses a significant risk to the long-term sustainability and supply chain needed to build a competitive domestic manufacturing ecosystem.

Furthermore, it stated that India’s electronics industry depends on “prioritizing value addition, attracting investments and leveraging the export potential of inputs for facilitating large-scale domestic production and reducing long-term dependency on China.

The CII also said that the demand for electronic components and sub-assemblies is estimated to grow over five-fold to $240 billion by 2030. This would include some of the key parts like motherboard, lithium-ion batteries, camera module etc. that are largely imported.

It recommended the government to come up with revised electronic components production-linked incentive schemes with higher incentives in the range of 35-40 per cent to reduce dependence on imports.

It identifies components and sub-assemblies of batteries (lithium-ion), camera modules, mechanicals (enclosures etc), displays and PCBs as high priority for India that cumulatively account for 43 percent of the components demand in 2022 and is expected to grow to $51.6 billion by 2030.