Amped Up - US Sparks New Tariffs on Chinese Batteries
US tariffs on China. What are they are, and what do they achieve? Our contributor Kush has the low down.
Earlier in May, the Biden Administration increased tariffs on $18B of imports from China in a move the administration claims to protect American workers and businesses from ‘unfair trade practices’. You can read the official press release here.
The administration claims that China’s government has used unfair practices such as intellectual property theft and forced technology transfers to increase its control over the global production of key inputs for critical industries such as technology, infrastructure, energy and healthcare, creating unacceptable risks to America’s supply chain and economic security.
A tariff is a tax imposed on the goods and services which are imported from another country. Governments do this to make more money, protect domestic industries/jobs and to put political pressure on other countries. The idea is that if foreign products are more expensive, they are less attractive to consumers, who will look to a cheaper, domestic product.
The increased tariffs affect several strategic industries to varying degrees. We’ve broken it down below.
The tariffs don’t all come into effect at the same time. This was likely done to give more time to industries where it will take longer to source US-made products due to the lack of existing factories/facilities. For example, the IRA led to a boom in new battery gigafactories, but most of this is geared towards EVs. Non Lithium-ion batteries have an extra year and a half before the tariffs come into play to allow for the building of manufacturing facilities.
The biggest tariff hike is for Chinese EVs, but seeing as the US hardly imports any Chinese EVs (just 1700 in Q1 2024), let’s focus on the battery stuff.
There’s no hiding from the fact that China is dominant over almost every aspect of the global battery market.
When it comes to raw materials, China mines more than two thirds of the world’s graphite, extracts 60% of the rare earths, owns almost half the world’s cobalt mines and controls a quarter of the lithium. Source here.
They’re also ahead in processing these materials. In 2022 China refined 95% of the world’s Manganese, 70% of Cobalt and Graphite, 66% of Lithium and 60% of Nickel.
China also produced more batteries than the rest of the world combined in 2022.
China isn’t just blessed with all the minerals needed for batteries, they were faster at recognizing the shift to EVs, and locked down the supply chain by buying or investing in mining operations across the world and building processing facilities and battery factories before anyone else. Meanwhile, the US and Europe were protecting domestic legacy industries such as traditional ICE car manufacturing.
The Chinese Embassy in Washington responded to the tariffs by saying that they will "take all measures necessary to defend our rights and interests.".
So what effects will the tariffs have? And what else is the US trying to do to combat this?
Lithium ion batteries accounted for $13.2B of imports into the US from China in 2023. This report by Energy Storage News estimated that the price of standalone storage will increase by 11-16%. The more components in a project which are sourced from China, the higher the price increase. For example if a company is buying cells from China and integrating them into US-made modules, the overall effect of tariffs is less than if the company bought the entire module from China, because a lower value of product is affected by the tariff increase. This may impact storage projects with lower margins, but the effect on demand is likely to be limited. We should also remember that lithium ion battery prices have been falling for a while.
If we assume that the 139$/kWh price in 2023 was inclusive of tariffs, then the new post-tariff price becomes 162$/kWh, which is around the level it was in 2022.
The move to increase tariffs could work with the measures already enacted in the inflation reduction act to boost US domestic battery production and reduce reliance on China. The IRA introduced tax credits for battery manufacturing, raw material mining/processing and EV purchasing. This tariff increase has been described by some as the ‘stick’ to go alongside the IRA’s ‘carrot’. In the one year after the IRA was announced, 14 new US gigafactories were announced, increasing US gigafactory capacity in the pipeline out to 2030 from 706GWh in July 2022 to 1.2TWh in July 2023. Over $110B of capital investment has been made in clean energy projects, including $70B for EVS and battery supply chains. The IRA also included a clause that qualifies any EV battery materials recycled in the US as American made, qualifying them for subsidies. Put this all together and this could be the start of a fully self-sufficient US battery supply chain.
But simultaneously, US customers will have to accept a hike in prices, at least until US battery manufacturing comes online (over 1000GWh of EV battery production has already been announced to come online by 2028 according to the Environmental Defense Fund). This could also just be the beginning. With a potential Trump administration, these tariffs could pale in comparison as to what comes. As with anything, it’s a delicate balance of protecting domestic industry while also pushing forward in the transition to clean energy.
I think we can all agree that the boost in domestic battery production enabled by the IRA has certainly been a huge step forward in the fight against climate change, but the move to increase tariffs is another reminder that whoever is in the White House, America will always put its economic interests first.
Only time will tell the effect.
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Knowing that most Chinese goods are low quality, cheap knock offs, why would anyone put citizen transport or power in Chinese hands?