New trade tariffs targeting Chinese imports of EVs, Li-ion batteries, solar cells, & more, could lead to increased production costs & potential renewable energy setbacks. Join us below as we discuss the multifaceted effects these tariffs made to protect domestic industries could have on achieving renewable energy goals!
Contact: Betsy Barry
Communication Manager
706.206.7271
betsy.barry@acculonenergy.com
In May, President Joe Biden introduced a range of new trade tariffs targeting Chinese imports, including electric vehicles (EVs), lithium-ion batteries, solar cells, critical minerals, steel, and aluminum. These tariffs are a response to concerns about China’s manufacturing overcapacity: Washington acted on worries that China’s high production levels are hindering U.S. initiatives to boost domestic production of green products, from solar panels and EV batteries to essential components like processed minerals. The tariffs will be phased in over the next several years, but among those taking effect in 2024 are EV and EV battery-focused ones. In response to the tariffs, China’s foreign ministry has said outright that they will seriously impact an atmosphere of cooperation between the countries. These tariffs are expected to have significant implications for U.S. efforts to build an electrification-focused manufacturing base, potentially affecting the broader clean energy sector.
The Current Landscape
The US has been imposing tariffs on imported goods, particularly from China, which is a major supplier of battery components and materials. These tariffs are intended to protect domestic industries and reduce the trade deficit. However, the energy storage and battery sectors, which heavily rely on imported raw materials and components, face increased costs as a result. Additionally, while there are very few EVs from China in US markets, China’s global exports of low-priced EVs grew by 70% from 2022 to 2023, worrying the current administration and US automakers. These tariffs effectively ensure that these lower-priced EV options won’t saturate US markets, even if the action was meant to stave off a future threat.
Increased Production Costs
Tariffs on imported lithium, cobalt, nickel, and other essential materials directly increase production costs for US-based battery manufacturers. The US has a limited supply of essential minerals required for EV batteries. Even with the discovery of new domestic reserves, the US would still lag far behind the leading suppliers like China.
Also starting this year are increases on the tariff rate of lithium-ion batteries for both EVs and non-EV applications will increase from 7.5% to 25%. This will raise the prices of cells from China, which could mean a greater reliance on other cell manufacturers from South Korea, Japan, and Europe. However, China currently produces nearly all of the world’s LFP cells, so there is a real risk that the tariffs could lead to price increases until domestic supplies come online. When tariffs raise the cost of these imports, manufacturers can either absorb the costs, which reduces profit margins, or pass costs on to consumers, making batteries and energy storage systems more expensive. The industry is bracing for both the former and the latter.
While tariffs on imported materials and components aim to reduce trade deficits and protect domestic EV, energy storage, and battery industries, the impacts could include increased production costs, curtailed innovation, and potential setbacks in achieving renewable energy goals.
Impact on Innovation and Development
One potential downstream impact of higher production costs is that they could stifle innovation and development within the US energy storage and battery sectors. Companies may have less capital to invest in innovation, slowing down advancements in battery technology. This delay can be detrimental in a highly competitive global market where technological breakthroughs are crucial for maintaining an edge.
On the other hand, these tariffs could actually incentivize battery manufacturers to invest in research and development to reduce reliance on foreign tech, ultimately enhancing domestic energy security in the process. These policies will also trickle down to the next investment rounds, just as the US battery industry is intensifying efforts to diversify supply chains. The domestic battery manufacturers will need capital, but investors will be sensitive to investing where returns are possible. So, while in the near term, effects could be somewhat minimal, over the long term, we may see some significant impacts in the years to come.
Competitive Advantage or Disadvantage?
EVs manufactured in North America will be more cost-competitive than Chinese imports. However, US OEMs could find themselves at a competitive disadvantage in the long term compared to international counterparts not facing similar tariffs. That said, there are speculations that this action by the US could spur the EU to take action as well. There is also speculation that tariffs could potentially benefit the US energy storage and battery sectors in the long run by encouraging domestic production. The increased costs of imports may incentivize companies to invest in local manufacturing capabilities, reducing dependence on foreign suppliers. This shift could lead to job creation and economic growth within the US. The fact remains, however, that countries without these trade barriers can produce and export batteries and energy storage systems at lower costs, potentially capturing a larger share of the global market. This scenario could impact US market share and influence in the global energy storage and battery sectors.
Impact on Renewable Energy Goals
The US has set ambitious renewable energy goals, with energy storage playing a key role in achieving them. Affordable and efficient energy storage solutions are essential for integrating renewable energy sources like solar and wind into the grid. Tariffs that increase the cost of these solutions can hinder progress towards these goals, making renewable energy less economically viable and slowing down the transition to a more sustainable energy system.
Supply Chain Challenges
Tariffs can lead to supply chain disruptions. Manufacturers may seek alternative suppliers to avoid high tariffs, which can result in delays and inconsistencies in the supply chain. Establishing new supply chains takes time and resources, further complicating the production process and potentially leading to shortages or quality issues.
Tariffs on imported materials and components have a multifaceted impact on the US EV, energy storage, and battery sectors. While they aim to protect domestic industries and reduce trade deficits, the impacts could include increased production costs, curtailed innovation, and potential setbacks in achieving renewable energy goals. To mitigate these challenges, stakeholders must explore strategies to balance the protection of domestic industries with the need to maintain competitiveness and progress in the global energy landscape. The future of the US energy storage and battery sectors will depend on navigating these complex trade dynamics effectively while encouraging and incentivizing increased investment in these domestic markets.