The new US Tariffs? What does this mean?!

Monumental news from the US this past few days. 

The Biden Administration's dramatic new measure to significantly increase tariffs on EV batteries and parts produced in and imported from China has got a lot of people talking! 

Tariffs will rise from 7.5% to 25% beginning immediately with further hikes on key upstream materials set to be enforced in 2026. The post-IRA tax incentives were already driving a push for domestic manufacturing but this is a bold further move to accelerate this movement. 

We've already seen the impacts this week having learned of one Chinese manufacturer pulling it's entire US team in response to these new introductions - at a time when there's already consumer caution due to US-China tensions in the news, the sudden hike in prices means its no longer viable for Chinese battery OEMs to try and compete.

There are concerns that the new tariffs could lead to short-medium term supply shortages given China's dominance in supply and the fact domestic mass scale production is still scaling, and also worries over the impact they will have on EV adoption (especially given EV tariffs have also risen too!) However, it does open the door for OEMs from wider Asia (particularly Korea - as we've seen with LG and SK) or Europe to prosper, alongside domestic manufacturers. 

Longer-term, the US will see this as essential to protect domestic industry jobs and market competitiveness, but also national security given the heightened tensions between the two countries. It reaffirms that the US is taking electrification seriously and just looking at the vast increase in Gigafactory developments already this past 18 months, you wouldn't bet against the US in the battery race. 

An important side note is that these tariffs won't apply for stationary energy storage markets just yet. BESS growth is really taking off in the US (just look at ERCOT as I discussed recently) and by delaying the introduction of these tariffs until 2026, it enables the existing ‘ready to build’ pipeline to become reality whilst also giving the right breathing space for domestic players to ramp up the localised supply chain. 

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It's certainly a divisive topic. From an internationalist perspective, I have always believed that collaboration is essential if we're going to achieve our climate action goals, whether that be inter-company or inter-country, and for the most part cleantech / climatetech is streets ahead of other sectors in terms of working together. However, moves like this do cast shadow on such collaboration and you do have to consider, what if the US widen these tariffs to other country / regional imports?

On the other hand, you have to acknowledge that China's tight grip on the global battery value chain is a concern. As we've seen with solar and semiconductors, they could totally wipe out competition with extremely low prices which is a concern for the wider world. In an election year in the US, there's no coincidence with the timing of this announcement. The US and Europe needed to respond so it's not surprising to see this move. From a European perspective, there's already the emergence of the EU Battery Passport and European Critical Minerals Act to help boost local market security. 

We may see some flux in the short-term but ultimately I think you have to applaud the Biden administration for making such a bold move for the long-term benefit of the country.