The New U.S. Clean Tech Tariffs Will Have Global Impacts

On Tuesday, U.S. President Joe Biden announced a slew of new of trade tariffs on Chinese imports, including electric vehicles (EVs), lithium-ion batteries, certain types of magnets, critical minerals, steel, and aluminum. The tariffs, which also include products in the medical and infrastructure sectors, come amid U.S. concerns about Chinese manufacturing “overcapacity.” Policymakers in Washington fear high Chinese production levels are stifling U.S. efforts to expand domestic production of green goods, whether finished products, like solar panels or EV batteries, or inputs like processed minerals. The tariffs will undoubtedly impact U.S. efforts to develop an EV manufacturing base, with potential ripple effects into clean energy.

Why Now?

Since the administration cannot push new climate legislation through Congress before the November election, it is using executive authority over trade to shore up its signature clean energy policy. The White House says it put forth these tariffs to “protect American workers and businesses,” not from extreme heat or rising seas but from losing manufacturing jobs to “unfairly” subsidized production abroad and from becoming excessively reliant on an adversarial power for modern technologies.

The tariffs’ primary aim is to safeguard the U.S. auto industry’s competitiveness as it shifts toward electrification. They impose a 100 percent fee on Chinese EVs, despite their minimal U.S. market share, to prevent potential market saturation. Additionally, they are designed to encourage U.S. car manufacturers to source components—including magnetic motors, batteries, and some critical minerals—from non-Chinese suppliers.

The policy also serves as a political signal of Washington’s current direction, particularly in reaffirming the Biden administration’s preference for domestically produced EV batteries as opposed to cheaper Chinese alternatives. Notably, the inclusion of tariffs on permanent magnets highlights that product’s importance in EVs and defense technologies while addressing a gap in the administration’s Inflation Reduction Act (IRA) subsidies.

The tariffs aren’t comprehensive, and they don’t cover every area where the United States is deeply reliant on Chinese imports—such as solar wafers, where the United States only has a single factory under construction and China controls at least 97 percent of global production. The focus here is on vehicles, batteries, and on the upcoming election.

Washington’s Calculus

The point of the tariffs is to make Chinese clean energy technologies more expensive, which slows their deployment and, Washington hopes, gives the United States time to catch up to the Chinese market leaders. Chinese manufacturers such as BYD make battery-powered vehicles that are much cheaper than their American-made counterparts—less than $20,000, compared to an average of more than $50,000 in the states—and often perform better too. Americans aren’t driving Chinese cars in any substantial numbers: Chinese-made EVs were already subject to a 27.5 percent tariff, and only about 10,000 were imported last year. Now, the Biden administration has ensured that these Chinese EVs will not have a U.S. presence for the foreseeable future, which will likely lead Americans to burn more gasoline and emit more greenhouse gases.

And yet it is also important to consider the politics of decarbonization. Since many of the obstacles to decarbonization are political, such as the difficulty of getting planning permits for renewable power projects or power grid expansions, solutions that focus on politics rather than the cost of green goods may have a greater impact. For instance, the majority of the costs for a solar project are for capital, labor, and administration, not the solar modules themselves. If solar panels are produced in the United States and not associated with either manufacturing job losses or the replacement of U.S.-produced fossil fuels with Chinese-made clean tech and minerals, these projects might have a better chance of widespread adoption.

It will take time before the full climate impact of these tariffs becomes evident, but what is clear now is that the United States is not the only actor here, and the rest of the world will respond.

China’s Response

The first response may come from the injured party. The Chinese Foreign Ministry has already announced it will “take all necessary actions to protect its legitimate rights,” and the Ministry of Commerce (MOFCOM) has deemed the move detrimental to the U.S.-China climate dialogue.

U.S. Treasury Secretary Janet Yellen said she “hopes” that there won’t be a significant Chinese response and that any response “should be targeted to our concerns and not broad-based.” Beijing will likely need to strike a balance to avoid scaring other trade partners, including those in Europe who are enacting their own (albeit less aggressive) derisking strategies. If China went for a surgical response—rather than some of the extremist measures being promoted in state media, such as selling off U.S. Treasury bonds or enacting import restrictions on U.S. agricultural products—there are some indications of where it might aim.

Some of these clues come from China’s previous steps to prepare for trade conflict with the United States and its allies. Last year, MOFCOM issued export license requirements for minerals such as gallium, germanium, and graphite—inputs used in semiconductors and lithium-ion batteries. This was mainly a mapping exercise to understand where Chinese exporters were shipping these minerals, and Beijing wasn’t actually blocking significant numbers of sales. But MOFCOM could now stop granting export licenses for sales of graphite to U.S. battery and automobile makers. MOFCOM has also previously floated an export ban on equipment used to manufacture solar products.

Other indications come from the U.S. tariffs themselves. By delaying the implementation of certain tariffs—such as those on graphite, which don’t kick in until 2026, or on solar manufacturing equipment, which was explicitly exempted—Washington is signaling what it wants to keep importing from Beijing for now. The question is whether China will allow the United States to keep doing so.

China could frame any potential restrictions on equipment used to manufacture solar products as merely the mirror image of U.S. (and allied) restrictions on equipment for manufacturing advanced semiconductors. Beijing has already banned the export of the machinery used to process rare earth minerals, undermining the West’s—especially the Pentagon’s—efforts to scale alternative facilities.

While the Chinese government plans its responses to the new tariffs, Chinese firms will be figuring out how to avoid them. One option is to open factories abroad or reroute products through third countries. Chinese exporters already do this by producing U.S.-bound solar panels in Southeast Asia or developing battery facilities in U.S. free trade–aligned countries such as South Korea and Morocco, in an attempt to qualify for IRA subsidies. BYD is already planning to build a factory in Mexico, where it could avoid China-specific tariffs—and perhaps all tariffs. Another option is to enter into joint ventures with or license technology to U.S.-based automakers, if U.S. politics will permit it.

European Blowback

The issue of Chinese overcapacity was already on Europe’s radar: the European Commission is in the middle of an investigation of subsidized electric cars from China. Brussels is reportedly considering imposing tariffs of 15 to 30 percent on Chinese-made EVs, although the Rhodium Group warns that the proposed levels wouldn’t be enough to deter European consumers, given the significant Chinese cost advantages. Chinese-made EVs are expected to account for 25 percent of the EU’s EV market this year.

Chinese manufacturers that can’t export to the United States will look for customers in Europe, further undermining Europe’s ambition to produce these goods themselves. This dynamic has been recently demonstrated in the solar sector. In 2018, the United States and India began imposing significant barriers to purchasing Chinese solar products, prompting a glut and buildup in the European market. By 2024, Norway’s polysilicon producer and Germany’s last solar manufacturing facility had closed. Swiss firm Meyer Berger, which owned the solar plant, said it would focus on its U.S. plants—which are eligible for IRA subsidies—while the company’s largest shareholder complained that unfair Chinese competition had undone its hard work.

With Washington’s push against Chinese batteries, Europe’s burgeoning battery sector could face a situation where Chinese products price out some of their robust onshoring developments across the Nordic countries, France, Germany, and Eastern Europe. The European Parliament recently passed legislation to incentivize domestic clean tech manufacturing, but policymakers in Brussels will need to act fast and with foresight to ensure that their battery industry does not suffer the same fate as the solar industry.

Other Countries’ Responses

For the rest of the world, the tariffs can present an opportunity. Exporters in countries other than China now have less competition for selling in the U.S. market: examples include Canadian and Australian mineral producers and Indian solar producers. Countries that aren’t planning to produce their own batteries or solar panels now no longer have to compete with U.S. consumers who want to buy from China.

But other regions or countries looking to build up domestic green manufacturing will now face additional pressure from cheaper Chinese imports. They’ll face their own difficult choices on tariffs.

For those countries that are happy to import cheap goods and have no plans to build up their own manufacturing bases, these U.S. tariffs could be a boon. China still wants to sell these goods, but Americans will be less likely to buy them.