How Will New 100% Tariffs on Chinese EVs Affect Car Prices and Availability in the U.S.?

New 100% tariffs on Chinese electric vehicles (EVs) and plug-in hybrids (PHEVs), effective August 1, are designed to protect the U.S. auto industry but will likely lead to higher consumer prices and accelerate a shift in manufacturing away from China. While few Chinese-built cars are currently sold in America, the tariffs on vehicles and key components like semiconductors and batteries signal a significant escalation in the U.S.-China trade war, impacting which models reach the market and what consumers will pay for them.

What Do the New U.S. Tariffs on Chinese Imports Mean for Car Shoppers?

The Biden administration has announced a sweeping increase in import duties on a range of Chinese goods. The most dramatic change for the auto industry is the tariff on Chinese-made plug-in electrified vehicles—a category encompassing both all-electric EVs and PHEVs—which will jump from 25% to 100%. This move, reported by Reuters, is part of a broader strategy to encourage domestic production and address concerns over national security and data privacy related to connected vehicles.

Other critical automotive components are also facing stiff increases:

• Semiconductors: Tariffs double from 25% to 50%.
• Lithium-ion EV batteries and certain metals: Tariffs increase from 7.5% to 25%.

According to the U.S. Trade Representative, the new tariff structure is subject to a public comment period until June 28, after which it will be finalized, with the first round of hikes taking effect on August 1.

Which Car Models Are Most Affected by the 100% Tariff?

The immediate impact on the U.S. market is limited because very few Chinese-built cars are imported. Based on our assessment experience, the automaker most affected is the Zhejiang Geely Holding Group, the Chinese parent company of Volvo and Polestar. Models that are currently produced in China and exported to the U.S. include:

• Polestar 2 and Polestar 3 (initial deliveries)
• Volvo S90 Recharge plug-in hybrid sedan
• Volvo EX30 small SUV (initial production)

However, the volume is low. Data from the China Passenger Car Association cited by Automotive News shows Geely exported only 2,217 vehicles to the U.S. in the first quarter of 2024. Furthermore, automakers are already acting to mitigate the impact. Volvo has confirmed that production of the U.S.-market EX30 will shift from China to its plant in Ghent, Belgium, to avoid the tariff. Similarly, Polestar plans to begin production of the Polestar 3 in South Carolina in mid-2024. Conventional gasoline-powered models built in China, like the Buick Envision and Lincoln Nautilus, are exempt from the 100% EV tariff.

How Could These Tariffs Lead to Higher Car Prices for Americans?

Even if entire cars aren't imported from China, the increased cost of components will likely trickle down to consumers. The new tariffs on batteries, semiconductors, and raw materials increase production costs for automakers. They face a difficult choice: absorb the higher costs or pass them on to buyers.

Analysts who spoke with Automotive News believe price increases are a probable outcome. This is particularly challenging for the EV segment, where prices are already higher than those of traditional gasoline vehicles. Higher costs could slow consumer adoption of electrified vehicles at a time when the government is investing in green energy initiatives. Decoupling from Chinese supply chains is also a massive logistical challenge. For instance, Statista reported that about 77% of the world's graphite—a key battery material—came from China in 2023. Shifting these supply chains to other countries will take years and incur significant expense.

Are There Loopholes or Strategies Automakers Can Use?

Automakers are pursuing several strategies to navigate the new trade landscape. The primary method is geographic diversification of manufacturing. By building cars in regions with favorable trade agreements, like North America or Europe, companies can circumvent high tariffs.

• International Alliances: Geely's ownership of European brands provides it with manufacturing bases outside China. Stellantis has a partnership with Leapmotor for the European market, and Volkswagen is collaborating with XPeng on EV software, granting access to Chinese technology without direct imports.
• The Mexico Question: A significant loophole involves manufacturing in Mexico. Under the United States-Mexico-Canada Agreement (USMCA), vehicles built in Mexico can enter the U.S. with a 2.5% tariff or even duty-free if 75% of their components are from North America. Chinese EV giant BYD has plans for a plant in Mexico but states it has no current intention to sell vehicles in the U.S. from there. However, the U.S. could still move to close this loophole on national security grounds.

The consensus within the industry is that these tariffs will accelerate a trend of "de-risking" from China, but this transition will be complex and costly.

What Is the Broader Impact on the U.S. Auto Industry?

The tariffs have sparked a debate about the future of American automotive competitiveness. Proponents, including the Alliance for Automotive Innovation trade group and the United Auto Workers (UAW) union, argue the measures are necessary to protect U.S. jobs and manufacturers from what they see as unfairly subsidized Chinese competition.

Conversely, some industry observers worry that shielding the U.S. market from high-quality, innovative Chinese EVs could cause American automakers to fall behind in the global race for electrification. The lack of direct competition, they argue, might reduce the incentive to innovate as quickly.

Based on our assessment experience, the most likely outcomes for U.S. car shoppers are:

• Higher prices for EVs and plug-in hybrids due to increased manufacturing costs.
• A delayed or altered rollout of some anticipated models, like the Volvo EX30, as production is moved.
• A more limited selection of affordable electric vehicles in the near term.

While the full effects will unfold over years, the new tariff structure marks a pivotal moment, signaling a move toward regionalized auto production and higher consumer prices as the industry adjusts to a fragmented global trade environment.