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How U.S. Tariffs Impact Chinese Climate Tech

The new tariffs against Chinese goods will have a widespread, if varied, impact on climate tech.
Abigail Bassett
May 24, 2024 5 min read
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Last week, President Biden announced a new round of tariffs on more than $18 billion of Chinese imports. These tariffs are part of a broader strategy by the White House to reduce US reliance on Chinese manufacturing and protect American jobs and manufacturing from what they say is unfair practices that undermine many of the industries bolstered by the IRA. The tariffs are focused on three main sectors: Solar panels, EVs, semiconductors, and batteries.

The move is an escalation of the increasing trade war between the U.S. and China and a carryover of Trump-era tariffs. It will likely have a mixed impact on climate tech. While the new tariffs will help bolster emerging US tech alongside the funding of the IRA, it could also put a significant crimp in the ability of smaller climate tech firms to scale their business thanks to increased operational costs. Here’s what you need to know about the latest Chinese import tariffs.

Solar Panel Tariffs

The Biden administration announced plans to reimpose Trump-era tariffs on Chinese solar panels after a two-year trade investigation took place and discovered that five major Chinese solar panel manufacturers had been skirting U.S. tariffs. The tariffs are significant; increasing to 50% from 25% and impacting everything from solar panel components to the panels themselves coming from China.

These tariffs, which are aimed at reducing the U.S.’s reliance on Chinese imports, are likely to increase the cost of raw materials for solar panel manufacturers and could pose a double-edged sword for climate tech startups in particular. The U.S. solar panel market has seen tremendous growth over the last five years, thanks in large part to the falling costs and increased awareness amongst consumers. According to the U.S. Department of Energy, the U.S. had 177 gigawatts (GW) of installed solar capacity as of March 2024. In 2023, the U.S. installed 46% more photovoltaics than it did in 2023, according to the report. That growth has been bolstered, in large part by supportive government policies like the IRA. At the same time, most solar panels are imported from overseas.

While the new tariffs may incentivize the development of local manufacturing capabilities, the short-term impact could mean higher operational costs. Will Wiseman, the co-founder of the startup Climatize, which allows everyday people to invest in solar projects around the country, told Climatebase in an interview, that its really a mixed bag. “From a high level perspective, it's something that I support because we don't want to necessarily go and give the manufacturing edge to China for the technology of the coming decades and energy future. The IRA and incentives and tariffs, are important for making sure that the US has the manufacturing capacity for the next generation,” Wiseman said. “For us, when we look at the small- to medium-scale projects some of them have been able to actually begin sourcing domestic produced content for their projects, which has been really exciting,” he continued. “For utility-scale projects, it's definitely going to be a big challenge. Those projects are going to be hit really hard, because you're talking about ordering, you know, 10s of 1000s of panels, versus maybe 200 panels for a smaller project.” Wiseman also noted that tariffs, like the IRA, are “an early foundational piece[s] to ultimately create long tail dividends.”

Moreover, the tariffs could impede the widespread adoption of solar technology in the US. AS Wiseman points out, higher costs could result in slower deployment rates for solar projects, as companies and consumers might postpone or reconsider investments in solar installations. This deceleration could hinder the broader objectives of reducing carbon emissions and promoting renewable energy adoption. There are also issues around building the machines that manufacture solar panels–most of which are made in China.

Zhai Huiyong/VCG via Getty Images

Battery Tariffs

Batteries are also targeted in the tariffs. Prior to this week’s announcement, critical battery technology faced a 7.5% tariff and included things like battery cells, storage components, control boards, and raw materials like lithium, cobalt, and nickel. The new tariffs announced last week raise these rates to 25%. Non-lithium batteries and components coming from China will also get a 25% tax.

While the IRA helped bolster the number of domestic battery manufacturing plants, planned for the U.S., there’s still a long way to go to get those plants online. There’s also the issue of the raw materials used to make these batteries. According to the South China Morning Post, China exported $475.7 million worth of non-lithium ion batteries to the US in 2022, and in 2023, that figure rose by 32% to $627.8 million. China also exported $10.1 billion in lithium-ion EV batteries to the US in 2022 and $13.5 billion in 2023. Chinese-owned CATL is the biggest EV battery manufacturer in the world, with 34% of the market, followed closely by LG. The top three battery manufacturers in the world are Chinese-owned, according to Visual Capitalist.

Lithium-ion and non-lithium-ion batteries are in nearly everything we consume today–from electric vehicles to our cell phones. The significant increase in tariff could impact everything from supply to the cost of these items.

Electric Vehicle Tariffs

Biden has also targeted electric vehicles in the latest tariff hikes, raising import tariffs from 25% to 102%. Here in the U.S. we have no Chinese EVs, but companies like BYD (which stands for Build Your Dreams), have U.S. automakers worried because they’ve been able to build a $11,000 EV at a very high quality. Two weeks ago, the first Chinese-owned EV company, Zeekr, debuted an impressive IPO on the U.S. Stock exchange, which raised questions about whether or not the surge in investor interest could help bolster America’s demand for cheap Chinese EVs. For the story I reported for The Observer, I spoke to Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, who said that the new tariffs are largely a ban on Chinese EVs in the us, but it won’t stop these companies from trying to get into the U.S. market.

“These companies are expanding globally. We're going to see BYD in Mexico, in South America, in Africa in Southeast Asia, and we're going to see all the other EV and non-EV manufacturers in China expanding into those realms now.” Fiorani told me for my story. “Just closing one door is just going to push them into another.” To his point, BYD is planning to open a plant in Mexico as a way to skirt the tariffs. It will remain to be seen if that works.

While there aren’t that many climate startups in the EV space, the impact of these kinds of tariffs could be significant for the rapid development and adoption of new, more affordable EVs.There are currently no affordable EVs on the market priced under $30,000.

While keeping Chinese EVs out of the U.S. market makes sense from a number of perspectives (data collection, anti-trade practices, and human rights issues included), it also takes the pressure off U.S. manufacturers to quickly bring affordable EVs to the market.

The Bottom Line on the New Tariffs

The newly announced tariffs by President Biden on Chinese imports, targeting solar panels, EVs, semiconductors, and batteries, aim to protect American jobs and industries from unfair Chinese trade practices. While they may boost domestic manufacturing and align with the incentives provided by the Inflation Reduction Act (IRA), they also increase operational costs for smaller firms, potentially hindering their growth and scalability. The balance between fostering domestic industry and managing increased costs will be critical for the continued growth and adoption of climate technologies in the US.

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The Author

Abigail Bassett